{"id":4390,"date":"2020-06-26T07:14:14","date_gmt":"2020-06-26T14:14:14","guid":{"rendered":"http:\/\/springwaterwealth.com\/?p=4390"},"modified":"2020-06-26T07:14:14","modified_gmt":"2020-06-26T14:14:14","slug":"why-own-anything-other-than-the-sp-500","status":"publish","type":"post","link":"https:\/\/springwaterwealth.com\/why-own-anything-other-than-the-sp-500\/","title":{"rendered":"Why Own Anything Other Than the S&P 500?"},"content":{"rendered":"

<\/p>\n

A COVID-19 testing site in Houston<\/h4>\n

<\/em><\/p>\n

The Economy<\/strong>
\nAnother 1.48 million people applied for unemployment for the first time last week, a slight decrease from the week before and the 14th straight week that more than 1 million people have filed for unemployment.
\n\u00a0
\nAmerican workers continue to file for jobless claims at record numbers, due to the economic shutdown to slow the spread of the coronavirus. For comparative purposed, in February the weekly unemployment claims were approximately 200,000 per week. The previous record was 695,000 jobless claims, in 1982.
\n\u00a0
\nThe total number of people claiming unemployment last week fell to 19.5 million, a drop of more than 750,000 from the week before. When including benefits for independent contract workers, over 30 million people claimed unemployment insurance of some type last week.
\n\u00a0
\nSome economists and Democratic politicians are concerned what will happen when the supplemental $600 unemployment bonus \u2013 created in March as part of the government\u2019s effort to support the economy \u2013 expires at the end of July. While some politicians on the right have expressed concerns that the payments create an incentive for some to remain unemployed, a study by the Federal Reserve Bank of Chicago released this month of data for the period 2013-19 showed the opposite. People collecting unemployment benefits search for new employment more than twice as intensely as those who have exhausted their benefits.
\n\u00a0
\nThe Markets<\/strong>
\nOn Thursday, the Dow Jones Industrial Average closed up nearly 300 points, or 1.2%, at 25,745.\u00a0 The broader S&P 500 index closed up 33 points, or 1.1%, at 3,084.
\n\u00a0
\nCOVID-19 Numbers<\/strong>
\nGlobally, over 9.5 million have been infected, and 485,000 have died, while in the US, over 2.4 million have contracted the virus, and nearly 123,000 have died. The US remains an outlier, with approximately 4% of the world\u2019s population, but over 25% of the cases and deaths.<\/p>\n

February 25: 0 deaths
\nMarch 25: 938 deaths
\nApril 25: 53,755 deaths
\nMay 25: 98,220 deaths
\nJune 25: 124,355 deaths
\n\u00a0
\nThe Public Health<\/strong>
\nThe US recorded over 38,500 coronavirus cases on Thursday, the highest single-day total so far. While some of that reflects an increase in testing, the virus is spreading more rapidly than it was several weeks ago. Across much of Europe and Asia, by contrast, the situation is less dangerous.
\n\u00a0
\nAshish Jha, director of the Harvard Global Health Institute, said yesterday that a spike this week in US cases of the novel coronavirus was caused by a rush to reopen the nation\u2019s economy without proper safety measures in place.
\n\u00a0
\nIn Texas,\u00a0about 4,000 people are hospitalized with the virus, more than double the number at the beginning of the month. Houston\u2019s Texas Medical Center \u2013 the largest medical complex in the world \u2013 reached 100% of normal operating capacity in its ICUs.
\n\u00a0
\nShockingly, the number of Americans who have been infected with the novel\u00a0coronavirus\u00a0is likely 10 times higher than the 2.3 million confirmed cases, according to Robert Redfield, the head of the Centers for Disease Control and Prevention.
\n\u00a0
\nThe larger estimate is based on blood samples collected nationwide that look for the presence of coronavirus antibodies. For every confirmed case of COVID-19, an additional ten people had antibodies. Antibody tests examine a person\u2019s blood for indicators that the immune system has mounted a response to an infection. Redfield also estimated that 92-95% of the US population is still vulnerable to the virus.
\n\u00a0
\nLooking Forward<\/strong>
\nIt appears all but certain that many states will be unable to control a surge in coronavirus cases and hospitalizations, the result of a desire to reopen before adequate safety precautions were in place and, perhaps more importantly the politicization of wearing facemasks<\/a>.
\n\u00a0
\nSo, what can be done? In all likelihood, another lock-down is politically untenable in most states, particularly when the White House continues to downplay the urgency of the situation. The most likely outcome is a surge of cases during the summer as businesses continue to open and people head outdoors, followed by a lull in the early fall and then another spike in the winter.
\n\u00a0
\nLike it or not, it seems we\u2019ve missed our collective first opportunity to drive the R number<\/a> below 1, and we will now have to try again.\u00a0 Will we succeed? Only time will tell.
\n\u00a0
\nWe remain available to assist you, your friends and loved ones during this extraordinary time.<\/p>\n

Why Own Anything Other Than the S&P 500?<\/strong>
\nSince the end of the Great Recession, the best performing asset class has been US large cap stocks. In an echo of the 1990s, these \u201cbig company\u201d stocks have to a certain extent defied logic – and gravity – by outperforming small company and value stocks.<\/p>\n

Yet decades of peer-reviewed academic research have shown that (over long periods of time) both small cap and value stocks can be expected to produce higher returns than large cap growth-oriented stocks.<\/p>\n

This has led some investors to question whether they should invest in anything other than US large cap stocks (i.e. the S&P 500), much less whether they should \u201ctilt\u201d their portfolios to include small cap and value companies.\u00a0 After all, how long should one have to wait for the promised outperformance?\u00a0 Isn\u2019t some impatience warranted?<\/p>\n

When we look at the data from the past decade-plus, what do we see?\u00a0 Perhaps somewhat surprisingly, value stocks have delivered returns largely in line with their historical average – they haven\u2019t disappointed on a stand-alone basis.\u00a0 Rather, it\u2019s been large cap growth stocks that have generated unusually robust returns. And much of the outperformance has come from a handful of stocks: Amazon, Apple, Facebook, Google, and Microsoft.\u00a0<\/p>\n

Is it reasonable to assume that this trend will continue?<\/p>\n

Well, one way to think about expected investment returns is that they reflect the cost of capital for companies.\u00a0 Most investors would agree that investing in small or value companies is riskier than investing in large companies,\u00a0and so they should have a higher cost of capital.\u00a0 And investors in these riskier companies will demand a higher expected return.<\/p>\n

So, the most reasonable assumption, however unlikely it may seem now, is that at some point values for large company stocks will correct (as they did in 2000-02) and small cap and value stocks will again show higher annualized returns.<\/p>\n

Finally, it\u2019s important to remember that the value and size risk premiums are not guaranteed to appear day in and day out, year in and year out.\u00a0 If the premiums were consistent and predictable, they wouldn\u2019t be \u201crisk\u201d premiums.<\/p>\n

Our recommendation? Be patient, trust the science and research, and let us know if you have questions.<\/p>\n

Keep the faith, be safe and stay healthy.<\/p>\n

PLEASE SEE<\/strong> important disclosure information at www.springwaterwealth.com\/blog-disclosure\/<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

A COVID-19 testing site in Houston The Economy Another 1.48 million people applied for unemployment for the first time last week, a slight decrease from the week before and the 14th straight week that more than 1 million people have filed for unemployment. \u00a0 American workers continue to file for jobless claims at record numbers, […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","_mi_skip_tracking":false,"footnotes":""},"categories":[3,5,6,11],"tags":[21,158,50,66,69,86,107,140],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/posts\/4390"}],"collection":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/comments?post=4390"}],"version-history":[{"count":0,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/posts\/4390\/revisions"}],"wp:attachment":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/media?parent=4390"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/categories?post=4390"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/tags?post=4390"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}