Broker Check

Stimulating Results

June 28, 2021

The S&P 500 index rose almost 3% last week to reach all-time highs yet again, as well as send the index back into the black for the month of June.  That makes the return through Friday nearly 14% year to date. 

As the Federal Reserve began to take a more assertive stance on beginning rate hikes in 2023, at the latest, the market mostly acted more comfortable with this.  In addition, seeming agreement by a group of senators and President Biden on a Trillion dollar infrastructure bill encouraged the market.  Every sector was positive last week, led by energy and financials at 6.7% and 5.3% respectively.  Crude inventory numbers showed a sizeable decrease in supply and the Federal Reserve board reported that all 23 large banks remained “well above” the capital requirements for its stress test. 

With the markets making all-time highs and making it appear “easy” to profit, we’ve been looking at how the current environment has an effect an investor psychology.  There are countless books on the topic, but the below quote seems like a good summary and an interesting thought track.  As professional investors, we build diversified portfolios as part of a financial plan and because we have the duty to build them responsibly for our end investors, we do examine our own thought patterns and document our thesis around each investment decision in the portfolio. 

 “Investors understand what they own. Gamblers do not care. Nevertheless, many investors do not realize they are dealing with gambling outcomes, thereby exposing them to gambling risk even when they believe they are investing responsibly. This makes the mitigation of gambling risk paramount. The appropriate approach for an investor, therefore, will be to know the probability of investing in a loser.”  (New Age Alpha LLC, 2021)

 A survey by the robo-advisor firm, Betterment, showed that out of 1,500 people who took the survey, 91% received government stimulus checks related to COVID-19 and almost half of those people invested at least part of those checks.   The survey was conducted during late April and early May as the “meme stocks” were soaring and flooding headlines.  In the survey, 750 people said that they actively day-traded and 51% of them were new to trading.  58% of day-traders said their goal was to make more money quickly.  Interestingly, 14% were not aware of the tax implications of the duration of a stock holding. (Reuters, 2021) While the sample was obviously biased to the “do-it-yourself” investor crowd, it does highlight some behaviors that on the surface seem to be uncomfortably risky.