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Millennium Pause

Millennium Pause

April 27, 2020
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The markets have whipsawed investors since mid-February 2020.  A significant crash and then a moderate rally in under 8 weeks is likely the fastest action I have seen in markets.  What direction the markets take next after nearly $3 trillion in Congressional Infusions and Federal Reserve actions to create liquidity in the bond markets, in response to the impacts of sheltering in place for business may not be enough.  The combination of efforts has likely put on pause the effects of this pandemic.  Yet, the efforts of governments worldwide will not likely save economies from the impact of not working and the gradual return to work that we will pursue.  Companies have lost revenue, employees have lost their jobs, and there will be fallout across all sectors, especially in travel, accommodations, restaurant and rising nationwide is impacting cities and states severely.   In other countries, response to the coronavirus has been mixed.  If a country had female leadership, rigorous steps were taken effectively with robust and somewhat more successful results than countries where a male leader was bombastic, overly authoritarian, and defiant.  Emerging markets like South Korea were significantly more successful than other emerging countries, like Brazil.  Small countries like New Zealand, Germany and Sweden have done significantly better than Italy, Spain, Iran or the United States. Even crazier things have been seen.   How will oil prices effect popular stock prices that seem headed to the moon, with CEOs reaching for Mars?

With so much information, yet no idea where markets will rush tomorrow, I suggest Seven Millennium Pause Strategic Steps to protect value and strategically consider where assets might be redirected or reallocated.

  1. Review municipal bonds.  Muni bonds in your own state can provide double tax free income.  Yet, cities and the state will be under pressure to cover the costs of the bonds they have.  With high unemployment and business income non-existent for the last couple of months, and likely for another couple of months, budgets are going to be squeezed, city workers will be furloughed or laid off, and services will be cut to balance budgets.  At the least, we need to shift from high yield muni bonds, where the stressors will be felt significantly to the more conservative bond funds.  In fact, it may be prudent in the next few months to leave municipal bonds for treasury bonds or government bonds in the portfolio. 

  2. Invest in Open Markets.  Due to a slow response to the pandemic, America failed to limit the spread of the coronavirus.  Along with misinformation from the current administration, ignoring of scientists and health experts, combined with faulty or lacking testing kits and availability, it is not a stretch to question America’s economic leadership in the next few months if not the next year.  Consider adding exposure to international developed countries and emerging markets.  These areas may open up faster, with less mistakes in their transitions, allowing them to take advantage in a post Covid-19 world.  I believe several countries will recover faster than our own domestic economy.    This would suggest an increased weighting to add more to Developed International and Emerging Markets, specifically Asia.  

  3. Flexibility is always important to successful investing.  We certainly have seen stocks going up and down over 1,000 points a day at times.  When this sort of chaos occurs, flexibility is absolutely necessary as the landscape can change daily.    

  4. Innovation has been thematic within various asset classes.  Seeking innovation or sector disruptors has evolved into a vital component of investment performance.  Identify Innovation selections as a significant component to every equity class, from Small Cap to Large Cap, with a Global inclusiveness – with an eye to the disruptive challenges the power of innovation can have on industries.   

  5. Consider Small Cap Investing.  Evaluating the recent crash and rally, large cap companies, and the S&P 500, led and participated heavily in the rally.  The top five holdings of the S&P 500, with 20% of the index, led the rally.  These holdings were significant in reversing the crash we experienced by creating the recent rally. Small Cap and Mid Cap companies remain near the bottom where the crash left many holdings.  Revisiting the bottom, adding to the Small Cap and Mid Cap areas, where they have already experienced a crash, could diversify the portfolio while buying these holdings cheaply.    Small and Mid-Cap assets may have the opportunity to climb higher than Large Cap Holdings.  

  6. Identify Successful Active Managers.  Active Managers are not infallible.  High Conviction/High Concentration Strategies can push overall performance significantly.  Strong Active Managers can improve performance and develop value in a portfolio.  By being highly selective, these managers can generate performance and avoid being fully invested or in holdings that do not help grow a portfolio. Selecting high conviction/high concentration funds or adding individual holdings from different sectors with temporarily cheap valuations may enhance a portfolio that has experienced recent chaos.

  7. Carefully Review ETF Holdings.  Each ETF has rules each follows, executing the strategies the ETFs follow.  After chaotic periods, examine the success and failure of various ETF themes.  You could discover great opportunities and make improved adoption of these ETF solutions while reducing expenses.  

These Millennium Pause Strategies may provide you a pathway to manage risk to your assets and continue the growth potential.  These strategies can be implemented readily or as you see opportunities arise.  Undertaking strategic reallocations for tactical advantage or pursuing trends that may provide advantage to a portfolio are important considerations.  Complete a realistic assessment of your portfolio with your financial advisor especially during your Millennium Pause in bear market territory.  Let's review your recent experience and how your assets performed.  We can have a short discussion so set aside time to discuss allocation strategies. 

Do you have a moment now?  Call me at 619-780-6780.  Let's make this Millennium Pause we are observing an opportunity to make our financial futures brighter.


Municipal bonds may be subject to alternative minimum tax and state and local taxes. Investing in tax-free bonds may not be appropriate for investors in all tax brackets.  

International investing is not suitable for all investors. International investing involves increased risk and volatility due to potential political and economic instability, currency fluctuations and differences in financial reporting and accounting standards and oversight. Risks are particularly significant in emerging and developing markets. Please consult with your financial advisor prior to making investment decisions.

Sector investments are subject to sector risks and non-diversification risks, which may result in performance fluctuations that are more extreme than fluctuations in the overall stock market.

There is always a risk when investing in stocks, including the potential to lose principal. Smaller companies are generally subject to greater price fluctuations, limited liquidity, higher transaction costs and higher investment risk than larger, more established companies.

The S&P 500 index is unmanaged and cannot be directly invested into. Past performance is no indication of future results. All investing involves risk and the potential to lose principal. 

Investors should consider the investment objectives, risks, charges, and expenses carefully before investing in an ETF. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Keep in mind that rebalancing may have tax consequences and transaction costs associated with this strategy. Please consult with your tax advisor regarding your personal situation.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. The information is based on data gathered from what we believe are reliable sources. It is not guaranteed by Waddell & Reed, Inc. as to the accuracy and is not intended to be used as the basis for any investment decisions. The information presented does not constitute a solicitation for the purchase or sale of any security and is not a recommendation of any kind. Please consult your financial advisor before making financial decisions.


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