Our Misconception About The S&P500 And The Local Economy

In September, the S&P 500 index retraced back to its August levels, but has since recovered most of the correction and looks to continue climbing upwards. As of today, the index is at 3477, and is just inches away to hitting its all time high at 3580. 

One of the previous misconceptions that I have was that, how can the index keep climbing when the local economy is so bad.

It seems as though the stock market is disjointed from the state of the local economy, with high unemployment and anxiety everywhere.

However, what we recently realised after watching a YouTube explainer video is that, majority of the S&P 500 is tech heavy, and is made up of stocks such as Apple, Microsoft, Amazon, Facebook, Alphabet, NVIDIA, Mastercard, Netflix etc. These stocks are all COVID-proof and most even benefitted from the stay at home phenomenon now. 

And while local economy, which is powered by 80% small businesses may suffer from COVID, the S&P500, which has a lot of tech powerhouses, are spurred by COVID.

Naturally, even as the local economy is bad, S&P500 can still continue to go up because majority of the component heavy companies are all benefitting from COVID.

Hence, the S&P500 do not actually reflect the state of the local economy.

This actually cleared our confusion which we wrote about before – where we equate “stock market” to the “local economy”, and reaffirmed our strategy of allocating our funds towards future proof and tech driven companies. 

Hence earlier last month, Mr Budget bought into Adobe with a holding period of 5 years, and Mrs Budget bought into both SEA and Amazon, with similar holding periods.

For the last quarter of 2020, Mr Budget is probably looking at deploying at least S$20,000 into the US market again, and Mrs Budget will be putting at least S$50,000 into the US market as she just received her home equity loan.

The biggest event that everyone is waiting for this year is probably the upcoming US election. For the election, should Trump wins the election, the stock market should continue to rally.

On the other hand, if Biden wins, we will most probably see a temporary retracement of the stock market as the stock prices in the uncertainties that will follow as Biden introduces new changes to the government. 

What it means is that, we are holding off some of our investments now and will only deploy most of our funds at least until the election. We are hoping that Biden will win and Trump will be out of the office, and we can take the opportunity to average up on our stocks when the retracement do come. 

So what about the local market? Are we looking at them?

To be honest, local stocks really pales in excitement as compared to the US stock market now.

We previously also wrote about how we are making a conscious effort to increase our US holdings and reducing our SG holdings proportionately.

Hence what we are doing now is allocating most of our funds to US stocks, and only buying local REITs through our monthly roboadvisor contribution. 

August 2020Mr BudgetMrs Budget
US Equity51%30%
SG Equity49%70%
Equity Allocations
October 2020Mr BudgetMrs Budget
US Equity57%41%
SG Equity43%59%
Equity Allocations

We will continue to adjust the breakdown to reach at least 60% US stocks so that the stocks are reflective more of a growth portfolio rather than a dividend portfolio. 

When we deploy our fund, we will most likely be averaging upwards into our positions so that we dont have an ever growing list of portfolio. We also realize that the winners will continue to compound and we should probably start to cut our loss on lousy performing counters earlier.

How Have We Been

So how’s life for us? Hahah glad you asked!

Mrs Budget and I are trying to have a baby now – though not really aggressively. But if we are pregnant, we would be immensely happy. It is also probably time for us to try to have a baby.

Just look at these pictures.

How do you resist them?

I think financially we should be ok to have this additional family member. It’s probably not as easy getting pregnant so those who got it on the first time are really quite lucky! If there are any tips / tricks – do let us know too! 🙂

Other than that, we are mostly entertained by Netflix and mobile gaming at home. Should have bought Netflix stock during COVID for that but we have probably missed the boat on that!

We miss travelling immensely, and not so much to the fact that we will sign up for the travel to nowhere flights or cruises.

How have you been?

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