June 5, 2020

One For The Books

I love what I do! For 37 years, I have been blessed to be able to help clients with all things financial. Along the way, I (we) continue to make a difference, improve retirement outcomes, and maybe reduce some fear as well. With the recent completion of our transfer to the Independent Advisor Division at Raymond James, Kaydan Wealth Management (and our entire team) is in a very strong position to continue this mission for many decades to come. On a personal note, I am excited and energized for the opportunities and challenges ahead!

Having 37 years of real-world experience can be extremely helpful navigating the ebbs and flows of the markets, economic cycles, tax policies, and news flow. Throughout the years, I have weathered four recessions and four separate market crashes (the kind that statistically should happen once every hundred years or so). This library of experience has allowed me to pull from an old ‘playbook’ anytime the markets were in a tough spot. Historical reference has helped me guide clients and manage portfolios to successful outcomes. I wish I had a playbook, a historical reference this time. There simply is no precedent for a recession brought about by government-mandated Stay-In-Place and Social Distancing Orders. Full economic recovery will be a gathering of directed government intervention, restored consumer confidence, and a strategy to permanently manage COVID-19. The future, however, despite the robust market rally, still holds several important unanswered questions.

Frankly, I cannot remember a time when I’ve seen such a wide disparity between what is happening in the economy and what is happening in the stock market. Let’s look at some hard data.

The unemployment rate soared to a post-depression high of 14.7% in April. In that single month, nearly all the jobs created after the financial crisis disappeared, at least temporarily. April’s 11.2% drop in industrial production was the single biggest decline on record as was the 13.6% decline in consumer spending. Record layoffs continue, with the first-time claims for unemployment insurance topping 40 million over a 10-week period ending May 23rd. Said differently, nearly one in four working Americans have experienced a job loss.

All the news, however, isn’t bad. The number of first-time filings has been declining, and the number of individuals who file regularly to receive a jobless benefit is about half the number of first-time filings. This may be the result of paycheck protection loans kicking in, plus reopenings are encouraging businesses to recall furloughed workers. Still, reopening does not mean normalcy and we still have little clarity as to how quickly things come completely back.

The market’s recovery from the March lows is truly amazing – epic! As I write this ahead of the May unemployment announcement, the market futures are up again. One has to wonder as to whether the DOW, S&P 500, and the NASDAQ are getting ahead of themselves; perhaps a little drunk on the euphoria of the economic reopening? Markets do react ahead of economic data and it goes to reason that they should recover ahead of a full return to normalcy. But do we really know when that will happen? Market action, talking heads, and earning estimates all suggest complete normalcy by year-end, coming off what is hoped to be two very powerful back-end quarters. Earnings estimates for the S&P500 in 2021 are currently about the same as 2019 implying a quick recovery. If that is the case, markets are cheap and deserve all the attention they are receiving; if the recovery delays either because of a resurgence of COVID-19, a change in consumer behavior, or unintended consequences of government intervention then we are in for more volatility and some pain. As we speak, our government is discussing another round of stimulus. If things are truly improving, do we need additional stimulus? Is there more out there to cause additional concern? Even in the best of times, economic forecasting can be difficult. Few econometric research firms are suggesting a “V” shaped recovery, even today.

That said, portfolios are holding up very well. Our main focus, like that of a physician, is ‘first, do no harm.’ Asset protection (within reason) rules the day. Because of our clientele, it is no surprise that we have a significant number of families who are retired or within five years of that event. We understand that a significant loss of capital can have a meaningful impact on the type of retirement one will experience, additional plans one can make, and the general fear and stress one may face. Because of this, we have been making adjustments in many of our actively managed models. Equity weightings in our Balanced With Growth Model were as high as 68% in late February, as low as 40ish% in late March, and back to 68% equity currently. Additionally, we have over-weighted the Small Cap space. Our Small Cap position in February was 2%, today it is in excess of 20%. Over the last several weeks, Small Cap has outperformed the S&P 500 by a factor of 1.75 to 1.0. Small Caps typically outperform in a recovery. Recently, we added some International back into our portfolios. In February, our International position was approximately 2%, today it’s about 7%. International is also beginning to recover a bit quicker than U.S. positions. Should market strength continue, we should deliver solid returns against our benchmarks. Should markets reverse, we have trades built out to substantially reduce our equity positions again. Without a playbook and much clarity, we continue to manage with one foot on the accelerator and the other hovering over the brake.

Long term the future looks bright. On behalf of myself and the entire Kaydan Wealth Team, I want to thank you for your trust, confidence, and friendship. Talk to you soon.

Warm regards,

Jim Kruzan, CFP®, CRPC®



The Dow Jones Industrial Average (DJIA) is a widely-watched benchmark index in the U.S. for blue-chip stocks. The DJIA is a price-weighted index that tracks 30 large, publicly-owned companies trading on the New York Stock Exchange and the NASDAQ.
The Russell Small Cap Completeness Index includes small-cap and mid-cap stocks that are in the broad Russell 3000 index but which are not part of the S&P 500.
The S&P 500 or Standard & Poor’s 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies.
The EAFE is a broad market index of stocks located within countries in Europe, Australasia, and the Middle East. Developed by Morgan Stanley Capital International (MSCI) in 1969, the EAFE Index contains more than 900 stocks from 21 countries.


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