2020 Stock Market: How is this possible?

“None of this makes sense” – Everyone, circa 2020

On the morning of July 30, 2020, the Commerce Department announced that US economic growth declined by 33%, on an annualized basis. That’s a number that far exceeds anything we have ever seen in this country. In other words, April through June of 2020 was the worst quarter for economic growth in US history. It’s worth also noting that unemployment jumped from historic lows of around 3.5% in Q1, to nearly 15% in Q3. Another all-time record. And not the good kind.

So how is it that on that very same morning, the S&P 500 opened just 4% below it’s all-time high, after rallying nearly 50% in only 4 months, including the best 50-day period for US stocks EVER?!

Good question. Let’s talk about a couple of ways something that seems to make no sense at all right now on the surface, could actually make all the sense in the world.


The stock market is not the economy

You may have heard this phrase recently. Maybe even from us. Whether it’s the media or our favorite or most loathed politician, we’re made to believe that the performance of the stock market is an appropriate measure for the health of our economy at any given moment. In reality, it’s just not that simple. 

The stock market is a forecasting mechanism. It is always forward-looking. The reality is that the day-to-day movements of the stock market are based mainly on how investors believe recent news will ultimately impact future earnings of publicly-traded companies. On the other hand, all economic data that is released to the public is based on what has already happened, not what lies ahead.

Since this particular economic crisis is somewhat self-imposed and there is broad consensus that an inevitable vaccine will eventually lead us out of it, investors seem to be looking past the initial uncertainty which caused the crash in stock prices we experienced in March. Although the actual economy is in terrible shape at the moment, investors generally aren’t putting their money to work for an immediate return. True investing is a long-term journey. Many long-term investors have likely seized on the opportunity to put more of their money to work in the market at (somewhat short-lived) lower valuations – generally a pretty good move from our perspective.


“The market” might not be what you think it is

Stating that the S&P 500 is within 4% of its all-time highs can be a bit misleading. What many people don’t realize is that the S&P 500, while widely used as THE benchmark for US Large Cap stocks, is not exactly representative of the whole US stock market. 

To no one’s surprise, there are 500 companies represented by the S&P 500 index. Yet, because it is a market cap weighted index, the 5 largest companies make up more than 20% of the index. In other words, the performance of FaceBook, Amazon, Apple, Microsoft, and Google, account for 20% of the performance of the index as a whole. So while those 5 companies are up over 35% on the year so far, the other 80% of companies represented by the S&P 500 are still negative on the year. 

Not to be a downer, but the investor outlook isn’t as rosey right now for the vast majority of US businesses as this most popular market benchmark might indicate.


What does all of this really mean for long-term investors?

Diversification matters. It’s very easy to fall into the performance-chasing trap of finding a single investment or asset class that has performed well recently relative to your portfolio and shift everything into it. 

Recency bias is the tendency for investors to assume that recent performance will translate into future performance. Unfortunately, succumbing to this bias is one of the most detrimental mistakes long-term investors can make. 

2020 will no doubt be a year that ends up providing numerous examples that reinforce the importance of having a long-term strategy and sticking to that strategy, rather than letting emotions take the wheel. 

At blooom, we believe an appropriate long-term strategy involves broad, global diversification. In the entire history of the stock market, it has never made much sense or been predictable in the short-term. Investors have been searching for a crystal ball, unsuccessfully, since the beginning of time. Even considering the perpetual uncertainty of the stock market, we can’t think of a single year that has ever highlighted the importance of having a personalized investment strategy, more than 2020. 

Here’s to a better second half!


The information is provided for discussion purposes only and should not be considered as advice for your investments. Investors should consider their ability to continue investing through periods of fluctuating market conditions.

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Election 2020: Don’t Mix Politics & Investing

Election years can be extremely nerve-wracking, to say the least. Add to that a heavily politicized health and economic crisis and the fact that most Americans are still adjusting to an entirely new way of life for the foreseeable future, and you have a pretty decent recipe for some unprecedented stress and anxiety. 

But when it comes to investing for a long-term goal like retirement, your personal political views can be a dangerous ingredient to mix into your strategy. History shows us that making decisions to alter your investment strategy based on anticipated election outcomes and/or personal political biases, is just not a good idea, no matter what “side of the aisle” you find yourself on. 


“The Market” doesn’t have a political party

Investors tend to give far too much credit AND blame to elected officials for stock market performance. This is especially true of Presidents. Much of this has to do with investors always searching for something simple to cling to that confirms their own biases, which then may help justify investment decisions. 

No matter which side you’re on, you probably feel strongly that the person or party you vote for will have a positive impact on the country, the economy, the stock market, your personal finances, etc. You also probably feel strongly that if their opponent wins, the opposite will occur. But a simple look at history shows that the market simply does not care which political party is in power. 

Source: Capital Group

This chart shows us that the long-term trend has been up, regardless of political partisanship. And neither party is clearly better or worse for stocks. If only it were that simple. What the chart ignores is all of the other factors that contribute to market performance and have nothing to do with who the President happens to be at the time. Wars, scandals, global crises, economic shocks, you name it. All are unpredictable and happened to every President on this chart. And yet, with exactly seven Republicans and seven Democrats included, we have yet to see a single event in our history that has broken the long-term uptrend of our stock market and economy.


Remember when…

You may remember that prior to President Trump being elected, the stock market (and much of the world for that matter) had seemingly priced-in and fully expected a Hillary Clinton Presidency. The night of the election in 2016, as the results began to indicate a Trump victory instead, stock market futures began to tank as many had predicted a Trump victory would be terrible news for the stock market. And yet, once the market had time to take in the results, we saw stocks rally significantly immediately after the election and in President Trump’s first and third years in office. And more importantly, the economy continued its historic decade-long expansion, until this year’s COVID-19 pandemic. It was the sudden shock of an unanticipated result and the newfound uncertainty of what that result meant, that ultimately spooked the market for that short time in 2016. It was not the political result itself that the market ultimately cared about, as it had been doing relatively well on year at that point, while expecting the opposite result just prior to election night.

You may also remember that prior to President Obama’s election in 2008, and reelection in 2012, his opponents argued strongly that his policies would destroy capitalism and the American economy, and lead to further declines in the stock market. Yet, President Obama ended up presiding over the longest period of economic expansion in US history, alongside the longest period of uninterrupted gains (longest bull market) for major US stock indexes like the Dow, S&P 500, and Nasdaq, in US history.

We can go on and on with these false narratives that didn’t play out as predicted, following nearly every election, but the fact of the matter is that Presidents (and their political party) generally do not deserve anywhere near the amount of credit OR blame they receive when it comes to stock market returns. Investing is unfortunately just not that simple.


The next election is always around the corner

When the dust settles and the campaign rhetoric ends, whether we have a new President or not, we will move on and the narrative will then shift to real policy, actual geopolitical events, and ultimately, the next election. This cycle never ends in a Democracy. So why should your investment strategy change due to what you think may happen as the result of any single election? 

Fear is a powerful weapon that skilled politicians know how to use very well. Uncertainty is the ammo most harmful to the stock market in any short-term period. And nearly every Presidential election cycle generally involves a series of warnings from all candidates that if their opponent should somehow win, the country will ultimately lose.

We’re all made to feel that every election is the most important in our lifetime largely because of this fear of the unknown and the perpetual “what if?”. Yet, the fact remains that these politically polarizing narratives have not played out well following any election in quite some time, if ever. And there simply is no real long-term correlation between the political party in office and economic growth or stock market performance, despite what political pundits and politicians themselves will probably continue to claim from now until eternity.

Despite all of this, we know that many have, and will continue to try, to jump in and out of the market based on their political ideology and election results that may either confirm or conflict with those beliefs. But we often reiterate with our clients during times like these that time IN the market is far more important than timING the market. Don’t believe us? Just take a look at how harmful a politically motivated investment strategy (on either side) would have been for long-term investors, dating all the way back to 1896…

This election is important, as all elections are. Voting is a right none of us should take for granted and we all know that elections do have consequences, whether you like the results personally or not. But as you enter the ballot box this November (or mail in your ballot from a safe, socially distant location), our hope is that the Dow, S&P 500, and the entirely unpredictable future returns of your retirement accounts are the farthest things from your mind.

Still feeling uneasy or need a better understanding of your own investment strategy? Reach out to a blooom advisor. We’re here to help!

The 2020 Voter Registration deadlines for many states are coming up.
Go to
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The information is provided for discussion purposes only and should not be considered as advice for your investments. Past performance is no guarantee of future results. Please consult an investment advisor before you invest.

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Sheila Bair | FDIC Chair, Author, Professor

Welcome back to our Blooom Brain Pickers series!  We’re picking the brains of the best in the biz to inform, entertain, and most of all, educate you when it comes to making personal finance decisions. Today we are honored to feature former FDIC Chair, Sheila Bair.

Sheila Bair has had a long and distinguished career in government, academia, and finance.   Twice named by Forbes Magazine as the second most powerful woman in the world, she is perhaps best known as Chair of the Federal Deposit Insurance Corporation (FDIC) from 2006 to 2011, when she steered the agency through the worst financial crisis since the Great Depression.  For her efforts to protect bank depositors and homeowners during the crisis, she received the Kennedy Library’s Profiles in Courage Award, and was named “the little guy’s protector in chief” by Time Magazine. A former finance professor and college president, Ms. Bair has been nationally recognized for her innovative initiatives to make college more accessible and affordable. She is a frequent commentator and op-ed contributor on financial regulation and the student debt crisis, as well as author of the NY Times Best Seller, Bull by the Horns, her 2012 memoir of the financial crisis.

Ms. Bair currently serves on a number of corporate governing boards, including Host Hotels, Bunge Ltd., and Fannie Mae, and on the International Advisory Board to the Santander Group. She also serves on the board of Paxos, a blockchain technology trust company, and as an advisor to several fintech startups.  She is a founding director of the Volcker Alliance, established by Former Federal Reserve Board Chair Paul Volcker to build trust in government and is the founding chair of the Systemic Risk Council, which advocates for financial stability. In addition, she is a Senior Advisor to the Peter G. Peterson Foundation on financial issues confronting young people.

Are there lessons from the Financial Crisis that could help us in our current situation? 

Get the help to Main Street. We didn’t do that with the bailouts of 2008/2009. Government support was highly concentrated on the financial sector. It didn’t trickle down. Even while Wall Street was reaping profits– and paying bonuses– by the end of 2009, it took about 10 years for most working families to recover.  This time around, the Fed is making yeoman’s efforts to reach the real economy but their current monetary tools are just not well equipped to do so. Their programs are still primarily helping big banks and big corporates. On the fiscal side, the small business programs and cash payments to households, including EIP payments are helping. EIP has boosted the consumer spending which underpins our economy. But the process of getting those payments to households has been slow and arduous.  Digital currency technology provides part of the answer. Giving all families a digital wallet where they could receive Fed-backed digital currency would be much faster and much more secure against fraud than our current system. The technology is there and could be in place within the next few years if we have the will to do it.


What is the best and/or worst financial advice you have ever received personally? 

Worst Advice: getting a credit card fresh out of college to “build my credit history”. I didn’t have the knowledge or skills to manage credit card debt, and quickly became addicted, eagerly accepting all those credit card offers banks were sending me.
Best Advice:  stick to one credit card.


What do you think should be done to improve financial literacy in our country?  

Start at an early age. Embed it in elementary and secondary core curricula like math.  Be serious about it, with quality content written by un-conflicted sources (unlike the industry literature that advised me to get a credit card.)  And don’t use it as an excuse for anti-consumer practices. One thing that really sends me up the wall is to hear industry officials trying to defend irresponsible financial products by saying we just need more financial education. 

You have paved the way for a lot of women in the banking/finance industry, what advice would you give to young women interested in banking/finance? 

It can be a great career choice. Financial services done right can be of huge benefit to families and Main Street businesses. Don’t forget that there are human beings on the other side of those services you are providing.  Treat them right. Research shows women tend to be more compassionate and a bit more risk averse when it comes to finance. We should be proud of those traits and use them to improve banking culture. 

As a children’s book author, what would your advice be to parents when it comes to teaching financial literacy? 

You need to be financially literate before you can help your children. So educate yourself and don’t be afraid to ask questions or “look dumb”. I hate to say it, but I think a lot of the esoteric terminology and complexity in financial services today are meant to intimidate consumers into not asking questions.  One of the reasons I write picture books for kids is in the hope that parents will read them with their children and learn something themselves.

In your time as FDIC Chair, what was the most challenging aspect of your role?  

Trying to get more help for homeowners. We had some success with mortgage relief, but the government should have done so much more.

In your time as FDIC Chair, what was the most rewarding aspect of your role? 

Giving people peace of mind about the safety of their FDIC-insured bank deposits. During the depths of the crisis, the late Bill Keane drew a Family Circus cartoon showing Bill peacefully asleep in his bed, with his piggy bank next to him, on which he had drawn “FDIC”. I had that cartoon framed, and it still hangs prominently in our home. 

Twitter: @SheilaBair2013

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Recessions Happen, What do I do Now?

This global pandemic has one question on a lot of people’s minds: how often do recessions happen? Since the Great Depression ended in the late 1930s, the U.S. economy has experienced a recession about every four years.

Because the last recession ended in 2009, people have been chattering for years about the country being well overdue for another. But even though history can help us recognize overall patterns in the economy, no one can predict exactly when recessions will happen or how long they will last. Bottom line? Recessions are simply an inevitable part of the economic cycle, and their frequency and duration vary.

Recession Definition

Before we go much further, let’s first define what exactly the word “recession” means. A recession is officially defined as two or more consecutive quarters of negative economic growth. So in theory, a recession could last as little as six months—or it could go on for years, as with the Great Depression and the Great Recession of 2007-2009.

Are We Overdue for a Recession?

As mentioned earlier, financial modeling is influenced by previous events. As history has shown us, recessions usually occur about every 4-5 years. Fortunately,  history can also tell us a lot about economic expansions, too!

Here are the facts: The average economic expansion in the U.S. usually lasts about 39 months, followed by a recession that lasts an average of 11 months. But the most recent expansion lasted from 2009 to February 2020, for a total of 127 months—the longest expansion in our country’s history. Clearly, the economy isn’t worried about following anyone’s watch.

The Benefits of a Recession

There’s no doubt about it; recessions can cause a lot of problems. People fear them for good reason. They often lead to higher rates of unemployment and the sinking value of assets. But the good news is that recessions have always improved, and they actually come along with some benefits. Yes–we really did say benefits!

The silver lining of recessions is they can help get rid of excess, balance economic growth, expand buying opportunities, and change the consumer mindset. Though it may be hard to accept, recessions aren’t 100% bad.

So Why Do Recessions Happen?

Though recessions don’t really happen because we’re “overdue” for one, it’s natural to think that a recession is more likely to happen the longer an economic expansion goes on.

In fact, in some ways, a recession is a self-fulfilling prophecy: The more Americans and their employers worry about the chance of a recession, the more likely it is to happen. Because when people are worried about a recession, they may sell their stocks, take money out of banks, spend less disposable income, and other behaviors that cause the economy to crumble.

The recession of 2007-2009 occurred in part because of a housing bubble, bad lending practices, and corporate greed. Other recessions have occurred because of the economic cycle, asset bubbles, and economic shocks. When the business environment changes rapidly and uncertainty sets in, companies must scramble to reallocate resources and limit production—and those actions can lead to a recession.

How Long Do Recessions Last?

As we mentioned before, it’s impossible to predict exactly when a recession will happen and how long it will last, but we can look to the past to make an informed estimate. Since the end of World War II, the average recession lasted an average of 11 months but could range from 6 to 16 months, or longer.

However, there are certainly exceptions to the rule. Our country’s most recent recession lasted longer than the historic average, dragging on from 2007 to 2009—a full 18 months. The Great Depression of 1929 to 1933 spanned more than twice as long, causing an economic depression that lasted for 10 years.

Difference Between a Downturn & a Recession

Sometimes we hear the terms “downturn” and “recession” used interchangeably, but in reality, they define two different states of the economy.

Downturn Definition

A downturn can happen any time major market indexes like the S&P 500 or Dow Jones Industrial Average drop. But a market drop doesn’t always mean economic activity has declined—a downturn might occur because news or politics cause fear and worry in the market. Once the bad news blows over, the value of the index may go back up quickly. 

When more serious downturns happen and indexes drop more than 20 percent, this is known as a bear market. This type of downturn could be caused by changing interest rates or other factors, and it can take longer to bounce back from.

Recession Definition

A recession happens when the economy has at least two consecutive quarters of negative growth. Though index values usually do go down during a recession, they aren’t the main factor in determining whether or not the economy is in a recession. It’s even possible to have index values going up while in the midst of a recession since the stock market is forward-looking and economic data is backward-looking.

Can a Downturn Cause a Recession?

Market downturns don’t always mean that there will be a recession, but some do. In these situations, the market downturn leads to a shortage of capital, which forces companies to lay off workers. Those workers have less money to spend or invest (i.e. restricting purchases to the necessities!), which in turn contributes to a possible recession.

What Industries Thrive During Recessions and Why

We already discussed some of the benefits of a recession. Here’s another silver lining: Even when economic growth is shrinking, some industries are still likely to thrive. It makes sense, if you think about. Recessions change consumer behavior, so there are naturally some industries that get an uptick when people are worried about money or trying to save.

Only time can tell which industries will thrive in any given recession, but we can make predictions based on the last recession.

In 2008, only a handful of stocks in the S&P 500 came out with positive returns. Some of those stocks included Dollar Tree, Vertex Pharmaceuticals, H&R Block, Walmart, and Ross Stores Inc. Most of the stocks on the list were discount stores or healthcare-related.

What Does the Government Do to Help During a Recession?

The government always steps in to lessen the blow of a recession, either by creating stimulus packages, sending checks to Americans, cutting payroll taxes, or creating government jobs. This is all known as fiscal stimulus. 

They also can coordinate policy with the Federal Reserve (the Fed), a central bank that was set up to keep unemployment rates low and stabilize prices.

There are many things the Fed can do to help the economy, such as lowering interest rates and capital requirements. The Fed can also create new money and use it to purchase securities such as government bonds, which slows deflation and lowers interest rates. Each of these actions fall under what is known as monetary policy, or monetary stimulus.

How a Recession Affects My Stocks

When the country is in the middle of a recession, stockholders get worried. But it’s important to remember that stock market performance is not the same thing as the economy. Stocks can gain positive returns during a recession, so it’s best to play it cool when the economy starts to look dicey. Instead, here’s what you should do! Use this as an opportunity to take advantage of a sale and follow the 3 “O”s of market uncertainty:

  1. Own your Emotions: You (should) have a long-term strategy in place. Stick with it. Whether you’re nearing retirement, or have years to go, you likely don’t need to be accessing all this money today.
  2. Obey your strategy: It’s not a loss until you sell. You’re at a fork in the road–you can sell and trigger a loss, or hold on and ride it out to recovery. 
  3. Operate like an expert: Facts: stick to ‘em. As history suggests, this too shall pass. 100% of past market declines have been followed by a full recovery and eventually new highs.

Diversify Your Portfolio

A recession is also a great opportunity to re-evaluate your portfolio and make sure it’s diverse enough to survive and thrive. If you’re decades away from retirement, your portfolio should be more heavily invested in stocks. Though there will be dips in the market, remember that you’re not actually losing any money unless you sell, and all market declines throughout history have only been temporary.

If you’re nearing retirement, you should have enough bond and cash exposure in your portfolio to help preserve the income portion of your account even in the midst of a recession. Think of your portfolio as one bucket for growth (stocks), and one for income and preservation (bonds and cash).

Do Recessions Always Turn Around?

Recessions have always turned around, since the beginning of U.S. history. The average recession lasts about four years, so try to be patient and focus on sticking to your strategy. Deep breaths!

Wondering If You’re Properly Invested for a Recession?

We’ve covered all the basics of recessions: We can’t predict exactly when they’ll happen, but we do know it’s not a matter of IF, but WHEN the next one will occur. 

They’re an inevitable part of the economic cycle, and smart investors are also prepared for when they happen. So don’t run from a good sale when you see one, and stay focused on your long-term investments. Sign up for Blooom today to stay prepared and afloat during a recession. Sticking to time-tested methods, we use a savvy market philosophy to ensure you’re making the most of your IRA or 401k. We’ve got your back!

Disclaimer: The information is provided for discussion purposes only and should not be considered as advice for your investments. Investing involves risk. Your investments are subject to loss of principal and are not guaranteed.

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