Over the last four weeks, we have seen the most rapid +30% selloff ever in the U.S. stock market. This historic market action combined the speed of the October 1987 Black Monday with the severity of the 2008 Financial Crisis.
What started as a fairly normal market correction in late February was exacerbated by a Saudi/Russian dispute over oil production, which crashed the price of crude oil starting on March 8. The selloff turned into a rout when on March 11, the World Health Organization declared COVID-19 a global pandemic. March 2020 will go down in the history books as a black swan, a rare and unpredictable event with potentially severe consequences.
Many economists are forecasting GDP numbers as bad as -15% to -25% for Q2 2020 if we continue on the path of social distancing designed to slow down the spread of the virus. Governments, corporations, and healthcare agencies are all stepping in to do what they can to stem the tide.
We are encouraged to see all of this massive firepower being applied to this global crisis. Here are but a few examples of the all-hands-on-deck effort:
- This morning the Federal Reserve announced a wide array of programs designed to keep corporations, small businesses, and municipalities afloat. You can think of the Fed as the neighborhood plumber you call in an emergency, as it provides vital credit during this global crisis.
- The U.S. Congress is currently debating a $1.6 Trillion stimulus plan designed to keep Main Street businesses and families solvent while we fight the coronavirus.
- The U.S. Treasury Department authorized a 90-day extension on paying Federal income taxes, which should also help households that have been hit hard by a reduction in wages or possible hospitalization of loved ones.
- Hospitals, research facilities, including UT Health Science Center, and biotech firms are intensely involved in the testing and treatment of patients.
- Amazon, Walmart, and Kroger are hiring hundreds of thousands of workers who may have lost their jobs due to the virus.
- Corporations, including Memphis’s own FedEx and International Paper, are exerting herculean efforts to keep global supply lines open for vital food and medical supplies.
I don’t think we are at the bottom yet in terms of the stock market, but we may be starting the bottoming process. It takes time for new policies and programs to start working, and though I know it is tiring when every day brings new and disturbing events, I hope you can remain optimistic.
To counter your feelings of frustration and fatigue, it helps to focus on your long-term plans and evaluate if they still work for you. Keep in mind that your Observatory model was run using some of the worst market periods in history, including 1937, 1973, 2000, and 2008.
If you have doubts as to whether your plan still fits your goals, then most definitely contact your Telarray Financial Advisor. It’s possible that your fact pattern may have changed with respect to employment, retirement plans, etc. It may also be that you need more cash now as an emergency reserve; we recommend at least six months of cash in your bank and/or investment accounts. We have been actively engaged in increasing cash for those who need it to a level to support six months of distributions. If you can delay purchasing unnecessary items, this action may also give you peace of mind as a buffer to market volatility.
We have a strategic plan for your portfolio, and we are executing this plan. We have selected only investment-grade bonds in your fixed income allocation for times, just like these. Most portfolios are currently over-weighted in bonds, which serves as a ballast to the rest of your portfolio. Bonds are designed to improve the safety and security of your portfolio. We are currently happy to remain over-weighted in bonds until we see better times ahead.
We are eagerly anticipating an opportunity to rebalance portfolios, but the Volatility Index is just too high presently to trade in this environment. At volatile times like this, the best thing you can do with your investments is to sit on your hands and wait. Trading in this environment is like sailing a dinghy into a hurricane; you might succeed, but the odds will be against you.
As soon as monetary and fiscal policies start to take effect and slow down the forced liquidation of financial assets, we will begin to see a way out of this storm. Also, some positive news on the medical front in “flattening the curve” of new COVID-19 cases – reducing new cases and their severity — would be most welcome.
I know this year will be a tough struggle, but I am also confident that we will prevail in the end and become stronger through the process. These difficult times will not last forever.
In 1933, President Franklin D Roosevelt famously declared at his first inauguration: “The only thing we have to fear is fear itself.”
The American people have always demonstrated an amazing ability to respond to new threats and to overcome challenges. We will endure and prosper in the long run!
Please don’t hesitate to contact your Financial Adviser, me as the Chief Investment Officer, or anyone else on staff here at Telarray with your questions or concerns. As almost all of us are working remotely, let’s not forget those healthcare professionals, police, and other first responders who are sacrificing so much to protect us.
Thank you, as always, for trusting us with your financial future. Please stay safe and help your neighbors.