Second Wave

Summer officially started this past week. Experts will debate the exact start of summer because it can depend on the moon’s positioning.  I figured summer started this week because the garden in my backyard is exploding.  I have taken to gardening the past few years.  Like many others, I spend a considerable amount of time in the Spring working on what I call my COVID garden.  And after a few months of careful watering and maintenance, my garden is looking quite healthy this year.

I was never a huge fan of gardening and botany in general.  Since my dad retired years ago, he really took to this hobby and spread it to me.  While his garden in Huntington Beach is larger than mine in Ladera Ranch, it is still quite small.  Like many of you in SoCal, Ladera Ranch is not known for large plots of land.  When my wife and I remodeled our tiny backyard a few years ago, I was able to squeeze in a few raised beds. The raised beds can produce enough veggies for a few meals here and there, but no way could it sustain my family.  I have taken to gardening as a nice and relaxing hobby, something I do for fun.  Definitely not for sustenance. After my initial harvest a few weeks, I started some new seed for another round.  I’ve found herbs like cilantro and coriander need to be planted in several phases or waves, so I can enjoy a nice chimichurri throughout summer.  That second wave of seeds is starting to germinate.

My garden isn’t the only thing seeing another wave. Concerns about another wave of COVID-19 infections are spreading across the globe. As Rhonda pointed out, several states are seeing spikes in infections and hospitalizations.  That has caused a second wave of fear to hit markets this week too. The S&P 500 and the Dow Jones fell for the first time in a couple of weeks. After a crazy quarter, investors may be taking some profits, as we close out the end of a historic second quarter.

Despite this week’s declines, recent data continues to show an economy and market on the rise.  Consumers are starting to spend again.  Unemployment is still horrific but improving and going in the right direction. Markets also look a lot healthier now too. Investment grade credit spreads have continued to come down, signaling easier access to credit for many companies.  Breadth in the markets is also improving quite nicely.  We’ve discussed how much of the market’s gains have been concentrated in a small handful of technology names. That situation has improved of late with more stocks seeing gains.  While there are many ways to measure the market’s “breadth’ one way is the “advance-decline” line which tracks the total number of companies that rise and fall.  While the tech sector continues to dominate, financials, industrials and energy have made big moves as well.

I am sure that some of the improvement in the market breadth has come from the recent trend of day trading on Robinhood.  Day trading Amazon and Apple doesn’t offer the same rush as day trading a bankrupt Hertz or playing the “When will They Open?” game on the cruise lines and other hospitality stocks. These speculative traders are having fun with their new hobby. But understanding that having fun with a new hobby by gambling a few hundred bucks on Hertz is entirely different than investing your retirement nest egg in it.  I have fun with my gardening hobby, but I still rely on professional farmers to provide food for my family.  To go from speculative hobby to investing will require some valuable lessons along the way.  Leverage, position sizing, and asset allocation are some of those valuable lessons.  Lessons that many don’t teach you but are incredibly important for traders to learn when they start out.  The suicide of a recent Robinhood trader that got in over his head has prompted many to stop and think. How can a 20-year-old take on $700,000 in debt through a series of complex option trades?  I have no doubt Robinhood did everything they could “legally” to prevent this, but did they do everything they could ethically?  Should brokers like Robinhood be teaching and educating young investors about equity valuation, leverage, technical analysis, and asset allocation?  If not them, who?

We often ask new and current clients to fill out a balance sheet as a part of their financial plan; a simple list of all your assets and liabilities.  The one thing that no one ever lists on the asset side is their families.  Their kids, nieces, nephews, and cousins.  Everyone forgets that our families are our largest and most important assets. And while many of you entrust Apriem to manage your financial assets, we want to help ensure that your most important asset is prepared and protected.  We want to continue to be a part of educating our community.  We are excited for the upcoming Apriem Portfolio Construction Series that starts next week.  We broke up the series into four webinars: The Importance of Asset Allocation, Fixed Income Investing, Equity Investing, and a final webinar that will tie everything together.  If you haven’t already registered, please do so soon.  The first session will be on Tuesday, June 30th.  We’ll have two sessions, one at 11am PST (link to RSVP) and one at 4pm PST (link to RSVP),  Since the event is all virtual, we have a much larger capacity than our other educational events so feel free to invite your family and friends.  Anyone you think can benefit.  If you cannot make it or have some general questions about the markets or a particular investment, please don’t hesitate to ask.

Have a great weekend!
/ben