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Investment Update: February 2020 

Due to recent market volatility, I wanted to give you a quick update on how we are reducing risk exposures while staying the course on your unique needs and goals.

We are reviewing every account and making necessary adjustments to reflect your individual investment strategies.

Here is a brief overview:

  • Since January, we have grown a little more cautious.
  • We added gold to many portfolios and reduced international exposure.
  • While the full impact of the Coronavirus is still unknown, we think it is likely to impact international growth (at least for the first 6 months of 2020).
  • The US presidential elections and geopolitics pose some risk despite positive fundamentals.

2019 ended strong and continued through January. That said, now we are seeing more volatility. Personally, I don’t think we are headed into a bear market just yet. Hence, being a little more cautious.

 

Is the Coronavirus to blame?  

Not entirely. We have been noticing yellow flags for some time now.

As I mentioned, in January we grew cautious, even before the onset of the Coronavirus. We noticed things like:

  • Earnings started to level off.
  • Sentiment and valuation in many asset classes seemed a little rich.
  • International growth (prior to China & Coronavirus) continued to show downward revisions. Germany and Japan actually posted negative economic growth in the last quarter due to weak exports and consumption tax hikes.
  • Volatility during election cycles. Many are speculating more volatility than normal during the 2020 US presidential election.
  • Market breadth was narrowing. Growth and momentum have overwhelmed other factors. Large-cap and defensive stocks have resurged versus small/midcap and cyclical stocks.  In fact, the FANG stocks (and Tesla) along with stocks with negative earnings were dominating YTD market gains.

 

What are we doing to minimize risk exposure?

Over the last several weeks we have started to:

  • Reduce international exposure
  • Add gold to positions
  • Focus on domestic stocks with positive cash flows and valuations
  • Avoid/minimize high risk in fixed income (particularly corporate credit)

 

So why are we not going outright bearish?

Despite some negative trends, there is a lot working in our favor.

 

We are carefully watching your portfolios and the markets. Our goal is to seize opportunities and minimize risks.

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