Last week was a rough one for global equity markets (understatement of the year). Panic selling hit the markets every day based on the potential effects of the coronavirus on the economy and corporate earnings. While the death toll is rising, it pales in comparison (so far) to the regular flu (3,000 versus 18,000). We do not minimize the tragic loss of life in either of those types of cases, but it’s hard to imagine that was the reason for a $6 trillion loss in market value in a week. That’s right, $6 trillion! To get some perspective on this, even the head of the World Health Organization (WHO) said the markets have overreacted and should “calm down and see the reality.” I think the panic has been fueled by the media but also the reality that unlike the “common” flu (which killed 61,200 people last year), there is no vaccine and no known antiviral medication that can address the symptoms of coronavirus. There is hope that the last part will change soon.
Back to the markets. Despite the massive selloff last week, our diversified client portfolios held up well and we were pleased (although we never enjoy losses). Our portfolios are built with varying layers of protection based on our clients’ situation. Much of that protection kicked in and did well. Let us know if you want to talk about how your particular portfolio has done.
Looking out beyond last week, today the markets are faring much better. That is because, as has been the case more times than we can count, investors are hoping for yet another rate cut from the Federal Reserve to restore the bull market that has been in place since the financial crisis began to wane. I won’t argue the merits of another increase right now as I believe it’s too early to make that case. However, the bond market has already driven longer-term rates to historical lows, and frankly, these rates simply can’t be sustained for too long. But what if they are? Can they go lower? A resounding yes is the answer. We really like making money for our clients in safe havens like treasuries, but we have to be realistic in that it may not last much longer.
Overall, we don’t know when the coronavirus threat will curtail, and therefore don’t know if we have seen the bottom in stocks. Practically speaking, one sign of a near-term bottom may come from a large selloff (capitulation) followed by an intraday reversal on a large increase in trading volume. It looked like that was going to happen Friday but to no avail, as the markets slid further. Trading volume today is high which is encouraging, but we really don’t know if the selling is done. So, if you are wondering if now is a great buying opportunity, the answer is maybe. It’s probably a better time to nibble than bite so as not to get bitten. Conversely, we don’t believe now is the time to panic and sell. Money is lost, not made, in a panic. Thinking, or “knowing” that this time is different is usually a losing argument.
Please let us know if you have any questions that we can address.
Chief Investment Officer
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