Well it’s been quite some time since I reached out to the AST community with a blog post but recent market events warrant me dusting off the keyboard to make sure everyone is at least paying attention.
Over the last month, the S&P 500 has dropped a shade more than 3%. It’s something that happens just often enough to remind people why fixed accounts are great long-term performers. Index annuities over the past couple of years have helped various clients lock in meaningful gains and now the downside protection inherent in those contracts will have everyone breathing a collective sigh of relief.
Profitable days will return but what’s in store before that comes? My Sunday reading uncovered an excellent Market Watch article that talks about three warning signs that have indicated major equities sell-offs in the past. Read the article here.
Apparently those warning signs are flashing brightly now and so I’d like to share with you what those are and what has happened the last six times they have all come together.
The article see those warning signs as excessive levels of bullish enthusiasm, significant overvaluation of stocks and extreme divergences in the performance of different market sectors.
Since 1970 the three indicators have appeared together six times and there are some pretty scary statistics that show what it has meant and why we may see something similar in the near future. Those include:
- Average subsequent decline of 38%
- Smallest decline of 22%
- Current valuation of Russell 2000 at its highest ever level
- Higher than 2007 bull market and 2000 Internet bubble
- Increasingly smaller number of stocks that contribute to the current bull market
- S&P 500 peaked in July with 1.4% growth for the month while Russell 2000 dropped 3.1%
- Indicator of diverging performance in different sectors
This article by columnist Mark Hulbert uses statistical data to match the current presence of these warning signs to past events. It’s really anyone’s guess what exactly will happen this time. The author seems to believe the Federal Reserve will act to help mitigate the decline and we all know what that means…
Break out the printing press! This alone should keep interest rates suppressed for quite some time so securing good retirement income and conservative growth options will still be a challenge for most.
I have two questions for you:
First, after several years of strong growth, how will you act knowing a decline may be looming? Since the market bottom in 2009 everyone has been calling for more carnage but nobody knew when it would be. Most bearish forecasts over the past five years have expired only to see more people jumping on the bull market bandwagon. I hung up my securities license several years ago so it’s not my place to give you advice here but I do feel you should know what’s out there.
Second, knowing that rates may well stay on the low side for a while longer, do you understand your options for conservative growth in this market? The secondary market takes the sting out of low fixed rates with yields up to 2% or more greater than other options. And index annuities might seem complicated but they are easier to understand than you think and it really takes the volatility out of a ride with assets you can’t afford to lose.
You always have options and we’re here to make sure you understand those options and help you find what’s best for you. We look forward to having you share your thoughts with us on what your plan is. If there is anything we can do to help we stand ready to assist.
Have a great week!
Bryan J. Anderson