Time To Reduce Stock Exposure by James R. Wigen – Sr. Portfolio Manager

Over the past few months we have seen an enormous decline across the board in the markets, Stocks & Fixed Income, and most recently an enormous recovery in the markets, primarily with Stocks benefiting from the effects of the Coronavirus.

There are still many sectors which have not been part of the enormous recovery, and many of those Stocks are high quality Blue Chip companies.  Any sector which does not deal with online purchases, home & food delivery, home repairs, online video meetings & Big Tech companies, are still having issues getting their business back, even close, to where it was earlier this year.

Although the market across the board is much higher now than late March, we have to try and determine if the second wave of the Coronavirus, which many medical professionals predict, will cause the Stock Market to decline again, not to March lows, but decline in general.  A second wave, if it does happen, will not shut down the economy again, however, it will continue to prevent many businesses from getting back to full operation.

About the time the second wave is expected to surface, we will also be dealing with another Presidential Election, and this election seems very different than in the past, based on events the US has been dealing with for several weeks now.  It is not my place to get political, I am only interested in managing money around the events which we are dealing with currently, and what we may be expecting to deal with in the near future.

I base my investment decisions solely on how I think news & economic data will impact the Stock & Bond Markets, both current & future.  Based on the data I look at now, and how I see the next fews months playing out, I believe reducing exposure to the Stock Market is best, and making sure there is enough Cash raised in the account.  I don’t see the Fixed Income market declining like it did March, as the Federal Reserve has all but assured us they will be there to support any issue which could surface, as they have been doing the past several weeks.

The vast majority of Fixed Income positions I purchased have continued to pay Monthly / Quarterly income as planned.  Many of these positions experienced large reductions in their price per share during the March lows, however, income payouts were not eliminated, even in March when we saw the enormous declines across many investments.  The price per share on these Fixed Income positions have greatly recovered since March lows, although not 100%.

The Stocks I have bought which do pay a Dividend, have mostly reduced or eliminated paying out that Dividend until further notice.  This strategy is best in my view as many of these companies need that cash to help get through these tough times, which eventually allows their stock price to increase.

If you are investing in a 401k, keep putting the max contribution you can afford, however, you can invest those contributions in a safe investment option which has no exposure to the Stock Market.

I am not predicting the Stock Market decline as it did in March, should we see a second wave of the Coronavirus.  I am simply indicating the Stock Market has rallied for the past several weeks based on restaurants and other businesses opening back up, and research advancements from Pharmaceutical companies. 

All of that is great news, however, in the coming days we will start to hear earnings announcements from the very companies that have been opened, and many of them will let us know that although open, are losing money or not making any money.  The will indicate their near term view is they will continue to lose or not make money, and that will not be received well by investors, and Stocks will drop.

Even with medical companies doing what they can to find a cure, and find other drugs which can help people with the Coronavirus.   As investors, we need companies to announce good news & good future expectations in order for Stocks to rise or justify their recent rise, and I don’t think we will get that in the coming weeks during earrings announcements.

I am not suggesting liquidating entire portfolios, however, reducing some profitable positions would be a good way to raise Cash and be ready to buy if /when the market declines, and the news is such that investing that Cash back into the market is a good risk.

I am always here to help, should you have any questions or would like further details on my investment opinion.

Toll Free: 1-855-546-9443

Past performance does not guarantee Future results, therefore, understand investing in the Stock Market can cause you to lose money.  Please take the proper risk for your current situation and get the advice from a financial professional who clearly understands your current and future goals and objectives.

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