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In this webinar Vanessa Wieliczko and Samantha Azzarello discussed the impact of COVID on the economy, the fiscal/monetary response, market performance to date, and some potential outcomes for consideration. Recording and summary below:


A Reflection on Our Recent Webinar

By Vanessa Wieliczko, Director of Investments at HoyleCohen

In a world of “Breaking News” headlines and inordinate amounts of data, we seek to provide clients with perspective. We’ve designed our investment platform with a simple driving mission – to assist each client in meeting or exceeding the return objectives needed to fulfill their life goals over the long-term at an acceptable level of volatility and risk.

This week we hosted a conference call in which we were joined by Samantha Azzarello, an Executive Director and Global Market Strategist on the J.P. Morgan Asset Management Global Market Insights Strategy Team. Together we sought to answer the question on many minds, “How can the economy and the market be so disconnected?”

2020 has been a tumultuous year on many fronts – to say the least. From a market perspective we witnessed the quickest decline into bear market territory on record. However, this rapid collapse in prices was caused by an external “shock” or a “black swan event”, not a “cyclical” decline caused by an overheating of asset prices, or a general exuberance. Likewise, the market’s recovery has been swift, and in a matter of months we’ve retraced back to all time market highs. But things don’t feel normal – in fact they’re far from normal. So why don’t the markets reflect the very real pain Americans are going through?

While we may not be out of the woods from a public health or economic perspective, there are many reasons for the optimism we’re seeing in the equity markets. (1) The liquidity provided by our fiscal and monetary response is unprecedented in size, scope and speed. (2) There’s significant optimism related to medical solutions, whether that be in the form of a vaccine or in the pharmaceutical treatments that can lessen the impact of the virus. (3) The markets are forward looking, and analysts calculate equity valuations based on discounted cash flows well into the future. These calculations are currently supported by low interest rates and an expectation that profits will recover to pre-COVID-19 highs within two years. (4) The service economy (retail, entertainment, travel, leisure, hospitality) has been disproportionately impacted by COVID-19 and the social distancing it’s necessitated. While these sectors make up 20%+ of payroll jobs and consumption in the U.S., they make up less than 7% of earnings in the S&P 500. And finally, (5) with rates near zero, the serious lack of feasible alternatives to investment make equities the most attractive game in town.

You may be sick of hearing your Advisor say “now is not a time to take unusual actions related to your portfolio” but, they’re right. Having a long-term horizon is one of the biggest advantages when it comes to investing, and unless your circumstances have changed, we continue to recommend that clients maintain their long-term strategic allocation. While every recession is naturally unique, the outcomes often look surprisingly similar. Financial markets fall (often sharply as we saw in February), and then eventually rebound (often quicker and sooner than anticipated, as we’ve experienced over the last five months). That’s not to say that we’re out the woods. Most analysts predict we’re in for more volatility and one or more pullbacks, but we believe the long-term trend is likely up.

Hearing that we believe the long-term trend of the market is up, you may be wondering – how long are we talking? You may be concerned about the distribution needs of your portfolio. However, distributions typically rely on the more stable parts of your portfolio, like bonds, that often appreciate in periods of distress. Our allocations to higher risk investments, such as equity, are always intended to have a longer holding period so they don’t need to be sold in periods of short-term distress. What’s important is that our recommended ratio of stability to growth within your portfolio is based on a client’s individual circumstances.

In our discussion, we talked about the composition of the S&P and the continued outperformance of the tech sector. You may be wondering how the current environment compares to the tech bubble of the late 1990s. While tech has continued a steep upward climb in recent years, the similarity ends there. In the late 90s we had rates around 6-7% as compared to near zero today. Pricing was largely based on a hypothetical vision for the future. Today, these companies are not only profitable but experiencing a secular growth trend brought on by exponential improvements in artificial intelligence. Our socially distanced world has only accelerated these trends. This has led many to abandon the traditional “value” vs. “growth” nomenclature, in favor of the pursuit of “quality” – companies with strong balance sheets that are both profitable and growing consistently.

So how expensive is the market? Price to earnings (or P/E) ratios are a commonly accepted measure of value and can be stated based on 12-month trailing or forward earnings. It’s a fairly simple measure that gives a quick assessment of the relative value of the market. Typically, forward earnings are expected to be higher and therefore help an investor justify the higher price they’re willing to pay (since the forward P/E may be closer to historical averages than an elevated trailing P/E). Today, both measures look fairly expensive – so why continue to invest? We don’t know when earnings will return to pre-recession highs, but many predict sometime in 2021 or 2022. But remember, analysts calculate equity valuations based on discounted cash flows well into the future. Essentially, stocks are trading on their forward…forward earnings. If you waited for earnings to recover completely before owning equities, the price of the stocks would already reflect that information and you would have missed your entry point. That’s why most professionals will tell you not to try to time the market over the short-run, but rather to decide whether the long-term risk and return assumptions are a fit for your portfolio.

We often reference the importance of portfolio diversification. Generally, most people understand the argument for holding a mixture of equity and fixed income, but the concept of diversification can extend to other alternatives as well. There’s a whole host of opportunities, each with their own unique characteristics and trade-offs. While we’ve found compelling opportunities in private lending, real estate, and MLPs over the years, we continue to seek additional opportunities to complement our core.

Finally, many of you have expressed concerns about the impact of the upcoming election on the markets. While we absolutely expect politics to contribute to short-term volatility, history has shown that election results have little impact on long-term capital market assumptions. We’ll explore this topic in our next webinar in late September.

If you or someone you know would benefit from speaking with a HoyleCohen Advisor, we encourage you to reach out.

Wishing you health and happiness.

To download the slide deck used, please click here.

Your Hosts:


Samantha Azzarello, Executive Director, Global Market Strategist, J.P. Morgan Asset Management

Samantha develops and communicates timely market and economic insights to retail and institutional clients across the U.S. She joined J.P. Morgan in 2015. Before she joined the firm, Samantha worked at Bank of America Merrill Lynch Wealth Management as a multi-asset investment strategist within the Chief Investment Office. She was involved in formulating and communicating the firm’s economic and market outlook as well as asset allocation views.

 Samantha also worked at CME Group as an economist, where she conducted research and analyzed global economic developments that impacted the company’s business. She has published articles in the Review of Financial Economics and Journal of Investing.


Vanessa Wieliczko, CFA, CAIA, CFP®:  Director of Investments, HoyleCohen

Vanessa oversees the investment department and leads the Investment Committee at HoyleCohen. She joined HoyleCohen in 2008 and helped develop the firm’s CorePlus approach, a unique blend of traditional and alternative assets.

Vanessa holds a Bachelor’s degree in business administration and management with a concentration in international finance from Boston University. Driven in pursuit of excellence, she obtained her Chartered Financial Analyst, Chartered Alternative Investment Analyst, and Certified Financial Planner designations all before turning 30. Active in the community, Vanessa serves on the board as President of the CFA Society San Diego, a group of more than 500 investment professionals.



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