Weekly Recap: What We’ve been Reading
News & CommentaryBy: Jude McDonough, CFP® AIF®
Jul 17, 2020
This is the second issue of our weekly recap of what we’ve been reading. In this weekly post, I’ll share the three most interesting articles from what we’ve read and add some commentary. This week features an article about mortgage rates, one trying to make sense of the market and an article about risk. Enjoy!
This article is pretty straightforward, but I included it because it is an opportunity to comment on the historically low mortgage rates. The article was triggered by the 30-year mortgage dropping below 3%. It was a small drop from last week, but the move brings it into the 2’s. This makes homes a lot more affordable for many Americans. That should translate into economic activity. A healthy housing market is a strong contributor to the economy. Realtors make money selling the homes. Builders make money building the homes. Retailers make money selling the materials to build the homes and furnishing the homes. Municipalities make money on taxes. You get it. The list goes on. This is undoubtedly a bright spot for the economy as more people pursue the American dream of home ownership.
Article Trying to Make Sense of the Market
This article from our friends at Charles Schwab takes a different approach than we did in trying to make sense of the recent market rally. There are many views on why the market has moved so much. One that I heard that made sense to me was that expectations have come down so much that any news that beats them adds fuel to the rally. Well, the first chart in this article completely contradicts that. According to the chart in the article, the analysts’ earnings estimates have essentially moved in tandem with the market since February. This is fairly normal. If you think about it, the market is forward looking. If estimates are more optimistic, then it should continue to rise and if they turn pessimistic, it should reverse course.
It also has some interesting information on restaurant dining. Here in the U.S., it is still down 59.5% from this time last year. Numbers don’t lie. The impact of the virus on that industry has been absolutely devastating. On a positive note, Germany is only down 3.5%. The next lowest after them was 31% though. My heart goes out to restaurant and bar owners in the world.
This article talks about risk vs. volatility. Volatility is part of investing and we should expect that if we invest in stocks. The author says that a major market drop is a product of volatility not risk. He is saying that if we expect volatility and prepare for it as best we can, it is not really a risk for us. There will be higher volatility years and lower volatility years, but we should expect it and accept it. It is fairly interesting as he puts risk into perspective. While it may come off as a little bit insensitive, he does make some valid points. My key takeaway is that if we invest with the right expectations, we will have better outcomes in the long run.
The article about mortgage rates gave me some optimism that maybe the analyst estimates will continue to improve. Hopefully the market will continue to rise with estimates as the chart in the second article illustrates. The market will not go up in a straight line and volatility will surely spike at times. We can use the perspective from the last article to understand our risks and accept volatility as part of investing.
