In our last communication in August we explained how pessimism was driving major selling of stocks held by both individuals and pros alike. Nearly $1 trillion was shifted to cash in March and April which pushed total cash on the sideline to almost $5 trillion.
Recent market trading may be signaling a change in investor sentiment. Retail investors have been buying individual stocks lately at a record pace. The lack of sports, concerts, and other activities due to the virus lockdowns have left plenty bored and looking for something to do. The stock trading fee wars have produced multiple trading firms that allow trades as little as $20 with little or no fees. This has led to an astounding number of people using their government stimulus checks to buy stocks as if they were in a casino hoping for big hits.
Professional traders are starting to get more bullish also. The Bank of America Merrill Lynch Global Fund Manager Survey covers the thoughts of almost 300 fund managers. The September report provided insights into their overall thoughts and sentiments of the market. The majority of these managers think we are out of a recession now. More importantly, 58% believe we are in a new Bull market which is up from 46% the previous month. While retail investors are necessary for markets to move higher, the investment pros provide the large dollars for sustained market gains. Since their jobs depend on performance, they will continue to get back into the market as gains continue to pile up. Sitting on the sidelines during major rallies is how they get fired.
In addition to the sentiment of traders is the direction of our economy. The Conference Board Leading Economic Index (LEI) for the U.S. tracks 10 economic indicators. When all of these are showing signs of growth, the index moves higher. For the first time since 2018 these leading indicators are trending higher. The economy is recovering. This leading indicator proves it. Investors need to pay attention.
The U.S. economy is not the only one that is important. What is happening across the globe is just as crucial. Starting in January, the Coronavirus emerged and China was the first to shut down parts of its economy. In February, Europe was hit hard and closures occurred there. The U.S. followed soon after.
The GDP of these regions fell between two and four times worse than anything they have seen previously. Unlike previous recessions, remember that this recession was caused by stores and businesses that were legally prevented from operating.
At some point, a combination of a successful vaccine and the disease peaking and receding will return us to some sort of normalcy. When it does happen, we will see a huge pickup in economic activity simply because business can operate again. Given the historic collapse in economic activity, shouldn’t we expect a historic recovery? And, this will be happening in every country across the globe.
Balance remains important in allocation of assets.
As this year winds down, most did not think that the Covid 19 virus would still dominate our everyday lives as it continues to do and, as of this writing, Ohio has seen a surge in new cases. Due to the constraints placed on large social gatherings, as well as limitations on restaurant and banquet hall capacities, we feel it is prudent to cancel our upcoming 36th Holiday Champagne Brunch this coming January. Obviously, it pains us to do this but we must keep your best interests at heart. We look forward to resuming this long-standing tradition in 2022 as we strive to put this year of mayhem behind us.
All of us at Lesjak Planning wish you good health and happiness this holiday season.