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With Markets Under Siege, It's Time To Consider Serious Portfolio Adjustment

By Michael KramerStock MarketsMar 20, 2020 05:45AM ET
www.investing.com/analysis/difficult-times-in-the-markets-can-call-for-tough-decisions-200517584
With Markets Under Siege, It's Time To Consider Serious Portfolio Adjustment
By Michael Kramer   |  Mar 20, 2020 05:45AM ET
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This post was written exclusively for Investing.com

With the stock market in an unprecedented period of volatility, we are all sometimes forced to make tough decisions. The recent turn of events around the potential impact of the coronavirus has unfolded with incredible speed, leaving many to wonder what could happen next, and no clear answer.

While global markets are today rising along with energy companies getting a boost from U.S. President Donald Trump's suggestion he may intervene in the Saudi-Russian oil price war, the bigger picture remains murky and difficult to assess. Before yesterday's uptick, the S&P 500 had plummeted 30% in just four weeks and it's anyone's guess what tomorrow may bring.

The increased uncertainty, rising levels of volatility, and potential for a slow economic recovery have resulted in the shifting of assets in my portfolio, reducing my equity holdings, and raising cash. With my fear that the economic outlook could grow even worse and the potential for the stock market to fall further, it seemed to be the right thing to do.

CBOE Volatility Index
CBOE Volatility Index

Global Risks

Global stock markets have so far failed to respond decisively to many of the actions that the central banks around the world have taken to try to calm nerves. Even with fiscal policy in many countries now on the table, the equity markets continue to fall.

It indicates a few points of concern, with one being that the future is very uncertain or that the policies governments and central banks are taking may not be enough to solve the potential fallout. The lack of convinced response from the equity markets seems to present the most significant concern.

Estimates May Be Too High

Additionally, it seems possible that the current environment could severely impact companies' performances as governments try to slow the spread of the virus by closing borders, and in some cases shutting down. It could result in some companies seeing a whole quarter or two of reduced revenue and earnings, and that means that earnings estimates for the broader S&P 500 may be too high.

U.S. 10-Year Treasurys Price Chart
U.S. 10-Year Treasurys Price Chart

If it does turn out that earnings are too high, then the value for the S&P 500 is not as cheap as it looks. Currently, S&P Dow Jones estimates earnings in 2020 of $169.94 and for $191.05 for 2021. It gives the S&P 500 a PE ratio of about 14.2 and 12.6, based on the indexes level of 2,409.40 on March 19.

However, using a multiple that is closer to the historical average of roughly 16, the current level for the S&P 500 suggests earnings of approximately $151 per share in 2020, which would be a decline from 2019 earnings of $157.10.

It seems possible given the severity of the steps taken to thwart the coronavirus, the impact to 2020 earnings could be more significant than a 4% decline from last year.

S&P 500
S&P 500

Companies May Re-Emerge Different

Additionally, not all companies will emerge from this period, as brief or as long as it may be, the same as when they entered it. In some cases, it could mean a changed business model. Also, the market is likely to revalue specific sectors, meaning some stocks and sectors may not receive the same earnings or sales multiple they had before this event.

It leaves investors uncertain of what lies ahead and, at this point, unsure of what the potential impact to one’s stocks may be. For me, it resulted in a painful process of having to give up on some companies that I have held for multiple years because I simply do not know how they will emerge from this environment, nor how long it will take for the business to recover.

At this point, with equities influx, raising the cash portion of my holdings, while reducing some of the stocks that have more uncertain futures, seemed like the right thing to do. It does, in the end, create new opportunities down the road.

Disclaimer: Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.

With Markets Under Siege, It's Time To Consider Serious Portfolio Adjustment
 

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With Markets Under Siege, It's Time To Consider Serious Portfolio Adjustment

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Comments (20)
Pwr Strk
Pwr Strk Mar 22, 2020 1:34PM ET
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this must be the same article SENATORS were briefed on late JANUARY
Jan Skilbrei
Jan Skilbrei Mar 22, 2020 8:59AM ET
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thanks. common sense say this will take some months, not years. Common sense said to us you cannot stop a virus that the chinese say spreads faster then the flew (in February, we knew, specialists knew in January, they just not told us, Trump too stupid to understand). NOW: when writers start to say they very afraid, gone to cash, will SOON  be time to buy. (but not yet, wait for numbers to flatten out, and hope for there is not another wave))
Derick Smith
Derick Smith Mar 22, 2020 3:59AM ET
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Time to load up on gold, GDX
John Meyer
John Meyer Mar 20, 2020 12:33PM ET
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You giving a specific example of a holding you cashed out of and your insights as to why would be more helpful and less generic...
ATOMIQ ILYA
ATOMIQ ILYA Mar 20, 2020 12:26PM ET
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Btfd!
Michael Barger
Michael Barger Mar 20, 2020 10:38AM ET
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Thank you. I'm a new investor and that's valuable information to know. Just have to change my wishlist now LOL.
Greg Santolin
Greg Santolin Mar 20, 2020 10:38AM ET
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I moved all my 401k funds to vanguards retierment savings trust, stable fund with almost no growth but no loss either, kinda like a savings account. My 401k is down $85,000 with a balance of over $500k. Im talkng the hit, the market is going to go down a lot more and im not riding it to the bottom
Rodd Babin
Rodd Babin Mar 20, 2020 9:39AM ET
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If dividends are cut from any of my stocks I'll cull them accordingly.
Razvan Mihailescu
Razvan Mihailescu Mar 20, 2020 9:17AM ET
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I agree that a reassessment of my portfolio would be okay. So I did just that in mid February, after observing the handling of KungFlu in China and Europe.
Marec Huber
Marec Huber Mar 20, 2020 9:17AM ET
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My thoughts exactly, Lol !
Jake Meager
Jake Meager Mar 20, 2020 9:14AM ET
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Just buy crypto and amazon and Uber stocks ... it’s not that hard... basic economy and psychology
Yadder Mejia
Yadder Mejia Mar 20, 2020 9:14AM ET
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Agreed. Its the basic moves and most obvious indicators that make a big impact. Do not overcomplicate this. Just buy on the lows... unless you plan to die within the next 3 years. Dont settle on a loss, the market WILL return.
eric tago
eric tago Mar 20, 2020 9:13AM ET
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Stick to the long term goals, they said.  Selling now will assure a loss, they said.  Say we held. Now they tell us they're giving up?  Wow.  Thanks.
Mark Espinola
Mark Espinola Mar 20, 2020 9:12AM ET
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It would wise to do puts in oil (energy sector contracts), various currencies, and domestic and international stock indexes.
Jiries Karadsheh
Jiries Karadsheh Mar 20, 2020 9:12AM ET
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Why would anyone put (puts) on the enery/oil sector when its geting beaten down
Mmm Lll
Mmm Lll Mar 20, 2020 8:58AM ET
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At this point you only sell if you think there will be a depression. Or you are one of those over-risked and over-invested boomers and facing a real loquidity crisis
Jose Emenis
Jose Emenis Mar 20, 2020 8:54AM ET
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I wish I had inside information like all the Republican Senators who sold their entire stock portfolio before the markets began crashing one month ago.....
Justin Pietrasz
Justin Pietrasz Mar 20, 2020 8:54AM ET
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Diane Feinstein is a republican?
Jose Emenis
Jose Emenis Mar 20, 2020 8:54AM ET
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Justin Pietrasz - Hillary, Obama, Biden, John Kerry, Pelosi, Schumer, and Joe LIeberman are extreme, right wing, war mongering, Wall Street loving Republicans....
Mark Espinola
Mark Espinola Mar 20, 2020 8:54AM ET
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Talk about insider trading. The government report on this Chinese made virus should be available to the public.  People should be doing puts in oil, domestic and international stock indexes.
Jose Emenis
Jose Emenis Mar 20, 2020 8:54AM ET
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Mark Espinola - The government report on all the American/Israel made global wars should be made available to the public, too....
aaron odonnell
aaron odonnell Mar 20, 2020 8:51AM ET
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this writer needs to stop trying to induce fear and panic
James Pattison
James Pattison Mar 20, 2020 8:40AM ET
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What stocks did you give up on with the murky outlook on how they would emerge?
Aldous Huxley
Aldous Huxley Mar 20, 2020 8:28AM ET
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the great reset is nigh. prepare accordingly.
aparantus some
aparantus some Mar 20, 2020 8:09AM ET
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Markets react to whatever happens in the world, central banks/goverments seems to want to cure market but is but that is literally curing the symptoms not the disease. It would have been better that the central banks /goverments but there effort in fixing / containing the disease markets will follow natuarlly. (e.g: printing money to fund research, healtcare, assist people who are affected). Even at this point you do not want to revive economic activity because this contradicts locking down. Only thing which is important for the markets is liquidity so that credit lines can be extended to after the crisis. If needed close the markets.
Cornel Pod
Cornel Pod Mar 20, 2020 7:46AM ET
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This will be the interesting part of this ordeal.
Mdotee Todee
Mdotee Todee Mar 20, 2020 7:34AM ET
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bottom tick article
jim boblooch
jim boblooch Mar 20, 2020 6:39AM ET
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thanks stay safe
 
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