You know it’s bad when the Barclay’s Aggregate Bond ETF (AGG) was the top performer and the S&P 500 ETF (SPY) was down almost 5%. Investors were selling their stocks and running to “safe” bonds. The tech heavy Nasdaq 100 ETF (QQQ) was the second-best performing ETF as it was only down ~1.5%. It appears that investors are more comfortable with the higher PE ratios of tech companies. This is probably because they have more cash than many small countries. The Small Cap ETF (IJR) continues its pinball-like swings and it was the worst performing ETF; this ETF was down almost 9.6%.
Don't be Too Negative
Stock prices do not go up or down based on current earnings. Investors bid up stocks based on future earnings. Would you purchase a stock in a company that had record breaking earnings if their outlook was bankruptcy….no you would not. Please do not use Hertz Car Rental as an example. Investors are ignoring 2020 and maybe 2021 earnings as they will be bad. They are obviously taking a long-term view that earnings will improve sometime in the future...which is good. Even with last week’s market decline the S&P 500 ETF (SPY) is still up ~36% from the bottom set on March 23rd.
The talking heads would like you to believe that young investors using the Robinhood app are bidding up the market…NO! They may be bidding up the hardest hit companies like airlines, but they are not moving the needle with giant tech companies. These companies have too much liquidity and market capitalization to be bid up with fractional shares. I believe average investors living in areas not as impacted by COVID-19 lock downs are more optimistic and have invested their money. This could change if a surge in deaths were to hit these areas.
It’s very important for investors to not become too pessimistic. The markets are going to continue to be volatile and you need to make sure you have liquidity set aside for essentials. Then make sure your portfolio continues to invest in the stock market, so you don’t miss the boat. The S&P 500 ETF (SPY) actually pays you almost 2% to wait. The average savings account will pay you ~.5%. Stay invested for the long-haul.