Market Insights & Commentary – March 2020
The last three months have been a roller coaster ride of emotions for investors. At the beginning of the year, you could hear the ticking of the coaster’s wheels being pushed upward by positive GDP numbers, unemployment at a 50-year low and strong end-of-year earnings. Most market outlooks delayed a chance of recession to 2021 or beyond. Nothing could impede the slow, steady growth the economy was seeing—until COVID-19.
Wuhan, China reported its first case of Coronavirus in December of 2019. The markets seemed to stay stable and even climb to new heights as whispers of Coronavirus were heard around the world and cases started to spread to new countries. The roller coaster then hit its peak on February 19th and the downward track was steeper than expected. This is where rational thoughts began to be overpowered by fear and uncertainty.
In sharp market corrections, it’s difficult not to get weighed down by the great uncertainties during this unprecedented time. Many people’s daily commutes and hours spent with coworkers have been replaced with eerie streets and stressful grocery store visits. The endless news cycle about the Coronavirus makes it easy to lose sight of the “big picture”. However, investing is and always has been about your portfolio needs for the long-term. We know it’s difficult to maintain a long-term perspective during times like these, but we must remember that this too shall pass, and brighter times are ahead.
Our goal is to highlight some key questions we have been facing and re-center focus during this time of heightened emotions.
What Does This Mean for You?
Although sometimes it may feel like it, this market pullback will not last forever. The term recession has been tossed around a lot lately. By definition, a recession entails two consecutive quarters of negative Gross Domestic Product (GDP). We likely won’t know if this period of time will be classified as a recession until October of this year—and by that point we may have seen the worst of it. That is because on average, recessions span 11 months. We will continue to see volatility in the markets until the Coronavirus curve begins to flatten and the markets begin to regain confidence. We will not understand the true economic impact of COVID-19 until we know the severity and length of the outbreak.
Timing the markets is seemingly impossible but as history shows, once the markets rebound from the “bottom”, we can witness dramatic returns. The chart below illustrates the length and severity of several bear markets, followed by their 1, 3 and 5-year market returns.
Source: A Wealth of Common Sense
That is why it is important to keep the focus on your long-term investment goals and try not to let emotions take control.
What is SH&J Doing?
Heading into 2020, there were two investing themes: we were entering into the eleventh year of the longest running bull market and the U.S. has an upcoming election. Knowing election years tend to experience increased volatility, our Investment Committee worked to rebalance portfolios to be more defensive. All portfolios are unique and constructed to fit each client’s specific circumstances, however, one example of a defensive strategy that we have utilized is minimizing exposure to high-yield bonds, which tend to move like stocks in time of volatility. In the last few weeks, as uncertainty increased, another strategy has included decreasing exposure to small and mid-sized companies and international equities in portfolios when appropriate. In times of prolonged market drawdowns, these asset classes are usually hit the hardest and slower to recover. We will be looking for opportunities with the cash we raised as markets begin to stabilize.
What Should You be Doing?
The welfare, health and safety of our clients, employees and families are of the utmost importance to us here at SH&J. Please, take this time to embrace social distancing and prioritize you and your family’s health. We want to say a special thanks to our clients and their family members who are medical professionals, store clerks, and all those providing essential care to others in this time of need. Know that we are continually monitoring client portfolios so that you can focus on you and your family’s health and well-being.
Rest assured, our team is here for you during these uncertain times. We will be conducting business as usual, monitoring the markets and your portfolios closely. Our goal is to provide continued and uninterrupted service to our clients, while maintaining the safety and well-being of our clients, employees and families. We cannot wait to meet with you face-to-face again soon.
