Happy Birthday?

March 20, 2020

Happy Birthday to me?  I don’t feel much like celebrating

 

Things got weird quick, didn’t they?  So I intended to write a brief update for today and tie it in somehow to my 39th completed revolution of the sun, but really, there’s only one thing to talk about and that’s COVID-19.  For sure it’s been a rough month as I’ve wrestled with how to guide my clients through these trying times.

I’ll mainly speak towards the virus’s effect on stock markets and how it pertains to investment clients.  That said, I recognize that everyone’s health is the primary concern in times like these and more than anything stated below I wish for your continued health and well being.

 

First, some numbers

  • The S&P 500 hit an all time high of 3,387.11 on 2/20/2020.
  • As of 3/18/2020 close of markets, that now stands at 2,398.33, a 29.19% fall since the high
  • The low of this decline so far is 2,386.13 on 3/16/2020, a 29.55% fall since the high
  • For comparison - the Global Financial Crisis from 2007-2009, the S&P 500 fell about 57% over 15 months. Yes, that was a larger percentage decline, but it took 15 months.  This decline is barely a month old, so it has been more severe on a short term basis.

 

Next, some thoughts 

  • My biggest fear at the moment (other than what I believe to be a small chance that we as a country can’t slow the spread of this virus down) is that another, unrelated, batch of bad global/international news. Markets are currently very jittery and last week when OPEC tossed a Molotov cocktail into the mix – or I guess the Russians are the folks who used those right? – and launched an oil price war, the markets got pummeled.  Another “out of left field” piece of bad news at this point would likely cause a similar reaction.
  • If you’re telling me that the collective of 500 companies in the S&P 500 are actually worth 25-30% less today than they were a month ago, I’ll have a tough time buying that argument. Say they were a little overvalued at the peak, ok.  Say they are going to suffer lower short term earnings as a result of COVID-19, ok.  Maybe some part of the decline is warranted, but to me, it’s difficult to get to a 30% drop in stock prices from those two factors.
  • My bigger concern to the eventual recovery is how smaller businesses cope with the current climate.

 

Continuing with a couple loose projections

I’ll add the disclaimer here that I am not now, I have never been and I never want to be in the business of timing the market.  The comments below are just thoughts and I wouldn’t “take them to the bank”.  I’m a numbers guy so it’s my nature to try to find numbers that could be significant.  When you read this remember I didn’t see a nearly 30% drop in less than 30 days coming.  As a small solace, I can confidently say I was not alone in being caught by surprise.  That said, I don’t necessarily plan on taking any action should these scenarios play out.  Basically I’m just giving you my take which I hope will help you continue to keep your eye on the horizon as opposed to the first 3 feet in front of you.

  • Stock markets hate uncertainty, and this virus is about as uncertain as it gets. Given the steep nature of the decline, it is not difficult to imagine a steep recovery when the uncertainty is addressed or disappears - but maybe not quite as steep on the way back up.  In my head I’m picturing the logo of a certain cell phone/internet provider whose name starts with a “V” (which still displays on my screen when my phone boots up) “appearing” on the charts.
  • I believe a bottom to the decline in the US stock markets will be established when the number of new cases of COVID-19 per day has stabilized or begins to decline in the US. That is to say if 1,000 new cases are reported today and 1,000 or less are reported tomorrow and that trend continues for a few days, that could be a significant turning point
  • I believe the market will begin to climb back strongly when the number of recoveries from COVID-19 announced daily is higher than the number of new infections.

 

I’ll leave with a bit of perspective

  • Remember even if you’re not making any investment switches, if you’re invested in actively managed mutual funds, then your fund management teams are diligently working to generate the best returns they can on your behalf.
  • I’ve been pleasantly surprised with the lack of panicked investors this past month. Both in the small volume of phone calls received and that when I talk to you, most have already been on board with the “let it ride” approach without me evening having to suggest it.  Again I don’t ever want to time the market and it seems everybody understands that.  As Becky Quick of CNBC said recently, “I’m an investor, not a day trader”.  So for that I say thank you and I salute you, as it is not easy to stay calm when turbulence arises and it makes me happy to have you as clients.  I do not take the trust you have placed with me lightly.

 

And finally

  • Our country has faced similar crises in the past. Both health crises and others.  Sometimes nationally sometimes globally.  Each and every time the good ol’ U-S-of-A has bounced back stronger.  I see no reason why the COVID-19 crisis can’t end the same way.

 

 

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. The information is based on data gathered from what we believe are reliable sources. It is not guaranteed by LPL Financial as to the accuracy and is not intended to be used as the basis for any investment decisions. The information presented does not constitute a solicitation for the purchase or sale of any security and is not a recommendation of any kind. Please consult your financial advisor before making financial decisions. Past performance is not a guarantee of future results.   The S&P 500 index is unmanaged and you cannot directly invest into an index.   Investing involves risk, including the potential loss of principal.

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