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Investing in US markets during tumultuous times

Investment choices: this graph shows how investors were trading (IMX) alongside movements in the S&P 500 Index (SPX). The data was gathered by TD Ameritrade (Image supplied)

It’s a new year and the US capital market is still tumultuous.

There is no other way to describe it. The headlines have said it all.

No point to even try to explain any further in the aftermath of the assault on human rights, government budgets, democracy, fellow men, while the worst of human health tragedies potently remains. Moneywise has run out of superlatives to describe last year and this year’s onsets.

Meanwhile, capital markets soared before, during and after a brief but steep relapse in spring of last year.

Let’s take a brief look at US capital market activity to once again attempt to understand the demographics influencing the lows and then driving market recoveries to all-time index highs. Readers may think: “Why are we sussing out US economics again. What about our own markets?”

Simple answer: the United States economy continues to be one of the largest global financial influencers, yes, that’s “one of” as there is accelerated competition from the Far East. The Bermuda economy tends to reflect that influence in consumerism, investments, insurance, businesses, our economic life and social patterns.

On the surface, for a layman, none of the performance makes much sense given that what could be called the ordinary workings of the US economy is still struggling with impending events:

• Still high unemployment

• Rent eviction stay legislation ending

• Mortgage foreclosures moratorium expiring

• Character of future jobs changing

• Gig and interim-type jobs increasing

• Small businesses, particularly, facing cash depletion decisions to permanently close.

• Individuals and their families still Covid susceptible, some infected, others having lost loved ones, all the while seeing savings diminish.

Given these facts, why then are US capital markets flourishing at year end? Isn’t the market supposed to reflect the actual economic circumstances?

According to market experts, capital market performances and valuations do not indicate current conditions, but reflect optimism of forward activity. The future is one that can be defined as wholesale populations’ Covid vaccinations, gradual economic, business and individual health recovery and a generous turnabout from the very recent chaos towards a considered stable government in action.

Additionally, the two prior rounds of US stimulus in 2020 not only assisted millions of families in dire cash straights, but also saw investors’ activity increase. “We saw more small investors participate in the market, as did all of our competitors across the board, in a way that we’ve never seen before,” said JJ Kinahan, chief market strategist at TD Ameritrade (see CNBC’s Patti Domm article link below).

TD Ameritrade issues a monthly index that anonymously tracks the equity investment choices of its 11 million plus clients against the performance of the S&P Index (SPX), which comprises 505 common stocks, issued by 500 large-cap companies in the US. The Investor Movement Index (IMX) report is a fascinating analysis of investor behaviour, likes, dislikes and activity. The chart pictured with this article tracks the data points for 2020 pretty closely against the SPX.

According to the IMX summary, TD Ameritrade clients were net buyers overall and, of equities during the period. They used volatility to add to positions in healthcare and Industrials and added broad-based market exposure with net buying in US stock ETFs and mutual funds. TD Ameritrade clients were net buyers of Pfizer and Moderna, electric car makers Nio and Tesla, along with Slack Technologies, Salesforce, and Square, while other popular names include Palantir Inc and Luminar Technologies Inc.

The IMX is a proprietary, behaviour-based index created by TD Ameritrade designed to indicate the sentiment of individual investors’ portfolios. It measures what investors are actually doing, and how they are actually positioned in the markets.

The IMX does this by using data including holdings/positions, trading activity, and other data from a sample of our 11 million funded client accounts in aggregate positions.

According to its website, TD Ameritrade created this index because the firm was often asked by financial news media, investment analysts, and others for insight into the mood and behaviour of individual investors. They originally largely relied on opinion surveys – which measure what investors are thinking or what they’re saying – to provide this information.

With 11 million funded client accounts spanning investors of all ages, account sizes, and experience levels, they saw a unique opportunity to create a quantitative, behaviour-based index that can better reflect what individual investors are actually doing. As a result, when it’s combined with opinion-based research, the IMX can provide a more complete snapshot of retail investor sentiment.

These monthly reports are free and can be obtained by providing an e-mail to the firm, or simply viewing online. Visit https://imx.tdameritrade.com/imx/p/imx-pub/

As at Thursday’s article-filing deadline, President-elect Joe Biden announced that another round of stimulus assistance will be effected soon after his inauguration.

Will it be another game changer?

Some analysts are warning about market capitulation given the overconfident euphoria of all-time highs.

Have we heard all this before?

Of course, yet every time, market valuations retrench then climb to new highs.

So, readers, this is simply observations (and cannot ever be considered investment advice) of a humble finance writer. I have no inside information or access reach to any industry gurus, so can merely echo their projections. They may be wrong, as may I, on all counts, but if correct, spring is coming and with it, as is so often said, “new green shoots.” We hope that for everywhere!

So, what is the ordinary investor supposed to do in the meantime?

Hang tight – don’t make any hasty decisions, and have a helpful chat with your investment adviser.

USEFUL LINKS:

• How the pandemic drove massive stock market gains, and what happens next, CNBC, Patti Domm, 31 December 2020. https://www.cnbc.com/2020/12/30/how-the-pandemic-drove-massive-stock-market-gains-and-what-happens-next.html

• The New ‘Interim Economy:’ How Employment Has Dramatically Shifted, Forbes. Kathy Caprino, Part of Kathy Caprino’s series “Supporting Today’s Workforce” 4 June 2020. https://www.forbes.com/sites/kathycaprino/2020/06/04/the-new-interim-economy-how-employment-has-dramatically-shifted/?sh=62334a49317a

• Author Martha Harris Myron, CPA JSM, a native Bermudian, is author of The Bermuda Islander Fundamental Financial Planning Primers, with all specifically focused on Bermuda financial and economic matters, international financial consultant to the Olderhood Group Ltd Bermuda, and financial columnist (since 2000) to The Royal Gazette, Bermuda. All proceeds from these articles are donated by The Royal Gazette to the Salvation Army, Bermuda.

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Published January 16, 2021 at 8:00 am (Updated January 15, 2021 at 6:23 pm)

Investing in US markets during tumultuous times

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