It’s the End of the World, Boys and Girls! Third Quarter 2020 Wrap-Up By: James C. Denton, CFP®, Managing PartnerOctober 5, 2020 Multiple Gulf Coast hurricanes, one after the other. Massive forest fires across the Western states. Covid pandemic showing signs of a potential second wave. The most divisive presidential election in our lifetimes, if not ever. And now the President has Covid, and it seems there may be a hotspot working its way outward from him at the center, if not from an epidemiologic perspective, certainly from a political one. WHAT’S NEXT? Who knows! Can it get any worse? Of course it can. And yet, where is the stock market in the face of all of this? Funny, that. If you had asked me in January or as late as early March what I would have expected from the market this year (i.e., pre-Covid), I would have been pretty much right on the money for where we actually ended up in late June. The same is true for September, although I wouldn’t have expected us yet to be quite where we are today. But the correction we saw in the past couple of weeks, and our current progress to stabilize and pull out are entirely typical for this time of year, and if anyone in my business is surprised, it’s probably by the relatively upbeat market activity we have seen in the face of all the reasons for it to be otherwise. I am not suggesting that I am a particularly astute market forecaster. My prediction on what has transpired – i.e., the path we followed to get where we are - would not have been close to what has actually happened. But all of this illustrates in a very practical way, what I have said consistently in virtually all of my client conversations, and writings over the years … There is always a correction, and worse, there is always a bear market out there somewhere. But you can’t plan on knowing when it’s going to happen, you rarely actually see it coming, and you can’t protect yourself by selling out if you think one is imminent. Said another way … the market does not perform in a predictable way in the short term, but it is entirely predictable over longer time frames. So what does this mean from a practical (actionable) perspective? Most people I talk to fear another melt down on the order of 2000 or 2008. We are different in how we react to this fear, but all of us “know” in our gut that its going to happen again. And we are probably right; it is going to happen. But if this absolute knowledge is going to lead you to react to every environmental stimulus (i.e., to over-react to anything that you see as a potential harbinger of the next “big one”) then you probably shouldn’t be in the market in the first place because you are forever going to be selling in times like mid-March, 2020, and not getting back in until it’s over (or you think it is). If you do, you subject yourself to most of the risk, and you are going to miss much if not most of the potential gains. Point … all of the aggravation along the way notwithstanding, the average return for the market over the past 12 months is just shy of 20%. What did the bank give you? How about your bonds? So the most persistent question I am getting right now … “What’s going to happen with the election?” What happens in the process, and what happens if “Bozo” wins? (note, I am not identifying who Bozo is, you make up your own mind on that one.) And, “What should we do about it?” The answer of course, is, I don’t know. Just like you, I have my expectations and I have my “druthers”, but ultimately none of us know what’s going to happen. And among those who do (think that they) know, their respective expectations of the market vary as widely as their reasons for their expected outcome of the election itself. A large number of them are wrong, of course, both in terms of the expected outcome for the election, and in what market results that will drive. Remember November of 2016? Hillary was absolutely going to win, and if she didn’t then the market absolutely would crash. Did you bet on either? How did that turn out? Our strategy, of course, has not, and is not going to change. We have diversified both in expectation of, and in defense for any potential outcome. The market is going to do what the market is going to do. Short term, anything can happen. Longer term … the market has good days, the market has bad days, and the market tends to go up. How can I say that? How many record highs have we hit in 2020? Incidentally, where we are right now was a record high in March before the Covid crash, and last month we set another new record. So as usual, yeah, you’re right, I’m going to tell you to “Stick to your plan”. Note that doesn’t mean that we are doing nothing. Under all market conditions we are constantly making adjustments to your holdings as they are appropriate depending on circumstances, yours’ and the markets’. We “worry” about it so that you don’t have to. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by LPL Financial. The material is for informational purposes only. All performance referenced is historical and is no guarantee of future results This information is not intended to be investment advice for any individual. You should consult with your personal investment advisor before making any decisions based on this material. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.