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Market Opportunities

From Lee Sherbakoff,
The Nalls Sherbakoff Group, LLC.

Dear Friends,

With activity in many industries sharply curtailed in an effort to reduce the chances of spreading the coronavirus while at the same time many cities and states are trying to kick start their local economies, some economists say a recession is inevitable, if one hasn’t already begun.

From a markets perspective, we have already experienced a drop in stocks, as prices have likely incorporated the growing chance of recession. Investors may be tempted to abandon equities and go to cash because of perceptions of recessions and their impact, but across the two years that follow a recession’s onset, equities have a history of positive performance. Trying to time the market does not work.

Our recovery could take a “V” shape as recent market gains indicate an anticipated speedy recovery. However, others pundits suggest that dire news is not being factored into recent gains, and that the recovery could look more like an “L” or “U.” Even after treatments for COVID 19 are available, the economy could take months to resume functioning. Wednesday, FED Chairman Jerome Powell said, “the record shows that deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy.”

According to Liz Ann Sonders from Charles Schwab, in the future we will see an increased debt to GDP ratio from countries spending their way out of recessions, decreased globalization as distrust of China grows, increased health screenings and decreased tolerance of working while sick, more fiscal caution from both businesses and governments that realize how unprepared they were for COVID-19 or any type of pandemic, and increased cautious behavior from individuals regarding financial decisions and social interactions.

The main cause of uncertainty with COVID-19 is that it is difficult to know how many people have been infected, if they can be reinfected, and there is no cure, treatment, or vaccination. According to a May 9 Wall Street Journal article, it is unclear how accurate antibody tests are and even if tests are accurate, it is unknown what level of antibodies a person would need to confer immunity.

Unless more than 40% of the population has been infected and built up immunity, something that doctors believe has not yet occurred, antibody tests alone will not guarantee a swift and full re-opening of the US. Many now believe that we will not have an effective recovery until there is widespread and accurate testing, a cure, and a vaccination (the latter which could take at least twelve months).

Ultimately, the market will recover. From 1950 to 2019, the twenty-year rolling average returns have ranged from +6% on the low side to +17% on the high side. Many of those 20-year periods have experienced pandemics and global financial crises. Even with recent market volatility, there are opportunities.  Consider tax loss harvesting, Roth conversions, asset location opportunities, estate planning and gifting, and moving cash off the sidelines either through an “averaging” approach or on market dips. With respect to estate planning, make sure your estate planning documents are in order (including a health care power of attorney) and living will, and keep these handy.

But, most importantly, stay safe and healthy and take proper precautions. If you have any questions or concerns, please reach out to us. All of us at The Nalls Sherbakoff Group look forward to seeing you live and face-to-face.  But, before then, we have full Zoom capability and are accessible by phone, text, and email.

Thank you for allowing us to serve you and your family.

The Nalls Sherbakoff Group, LLC

DISCLOSURES: The information provided in this letter is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment, legal, or tax advice. The Nalls Sherbakoff Group, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of, or reliance on the information. These indexes reflect investments for a limited period of time and do not reflect performance in different economic or market cycles and are not intended to reflect the actual outcomes of any client of The Nalls Sherbakoff Group, LLC. Past performance does not guarantee future results.