Jim Niedelman:
It’s 4 Your Money time. We’re joined this afternoon by John Nelson of NelsonCorp Wealth Management. Great to see you, John.
John Nelson:
Thanks, Jim. Happy to be here.
Jim Niedelman:
In recent weeks, we talked about how the financial markets don’t always sync up with what’s happening elsewhere in the world. Can you share some of the surprising developments we’ve seen over the past few months?
John Nelson:
Yeah. It’s certainly been an eventful five months in the financial markets, especially in the US stock market. I’ve got a graphic here that’s going to help illustrate some of the points or some of the factors that we’ve seen. At the top of the chart, we have the blue line that’s illustrating the US stock market from its peaks in February and the sell-off that we saw. It just took 23 days and we saw about a 35% decline in the US markets. That was then followed by, in the lower part of the chart in the red line, from the white line on, the recovery. So, 40% recovery after that decline, which was significant. A lot of that spurred on government intervention, federal reserves stepping in, and the bond market, which in turn, helped the stock market.
John Nelson:
It’s certainly been a volatile ride. We don’t think the volatility has gone anywhere, but it’s the disparity in terms of the companies that have come back from that, with that 40% rise, has been big. The big companies that have lots of cash on their balance sheet have certainly weathered the storm better than others. And we think that consolidation will likely continue.
Jim Niedelman:
A lot of these events took people by surprise. Would you say investors, in general, were well-prepared for what took place?
John Nelson:
Not in particular. We were coming off a 10.5-year bull market. Things were great. It was the rising tides, raise all boats dynamic that people have been riding for a long time. The coronavirus certainly spurred on the sell-off, made it more dramatic than it probably otherwise would have been. But to see a decline of 30 plus percent after a 10-year bull market is not uncommon. But we just really pound the drum of people knowing what they own and why they own it. The studies have shown that people spend more time researching their next vehicle than they do an investment itself or even a financial professional that they’re deciding to work with.
John Nelson:
We would like to see that change, obviously, and understand that going forward, this is a great time to re-analyze what you’ve done. The portfolio was stress tested during this period of time. You’ve seen a nice recovery. So, those who are not comfortable in the positions that they’ve been in or how they fared through that environment, there’s defined risk in other types of strategies that can be put in play to help limit on the downside, if those days come here in the future.
Jim Niedelman:
Have their been any factors of the markets through this that have been consistent with expectations? And if so, could those help people who are watching right now navigate their investments, going forward?
John Nelson:
Yeah. Again, we think the disparity in the winners and losers, maybe a little more dramatic this go around than we’ve seen in others. The recovery has taken place for the big type companies, like I said, before that looked good from a financial standpoint, but the compression and the sell-offs that we’ve seen, companies 30%, 40%, 50% off in earnings, big major companies. So, the big blue chip type stocks that a lot of people like to ride and think are quite safe, some of them have fared very poorly through this entire process. And just understanding that we have seen a little bit of a recovery. It’s tough to see that we’re just off into the next bull market from here. So, those who are not comfortable with some of the volatility that they have experienced, this would probably be a very good time to implement or at least explore some of those defined risk or more protective type positions that could help them into the future.
Jim Niedelman:
John Nelson with Nelson Corp Wealth Management. Thanks for the insight. In case you missed any of this conversation, we have it available for you on OurQuadCities.com.