March 16, 2020 –
We’re back at it this morning with market futures giving back Friday’s bounce. Over the weekend, the Federal Reserve cut interest rates to zero and added an additional $700B in quantitative easing into the financial system. While this is a welcome sign for the credit markets, it is doing little to calm the equity markets. From my vantage point, stocks are more concerned about the ailing consumer and the financial challenges the virus is presenting the everyday American. Like most of you, I spent the weekend in my home as if we were dealing with a snow storm in Kentucky. This included a web based church service due to general worship being moved exclusively on-line.
Regardless of your opinion on the virus itself, it is quickly becoming the norm to avoid gatherings of any kind and my guess is this may be federally mandated in the very near future. Since America is primarily a service based economy the economic decline from this is what the stock market seems most concerned with.
I spent a great deal of the weekend reviewing portfolios and pondering the current decline. While it’s hard to do, I feel it extremely important to remain open minded and objective regarding this or any market decline. The first line of defense in any bear market is one’s asset allocation. This is the breakdown of stocks versus bonds and often correlates with a person’s age or investment time horizon however as you know by now, we prefer to view this against the backdrop of a person’s required rate of return and risk temperament. What this has always meant to us is not taking any more risk than is necessary and is why we’ve been so adamant about reviewing these allocations to ensure people are correctly positioned regardless of the market environment. At present, due to reducing exposure prior to and during this decline, it helps to know our current equity allocation exposure has been reduced considerably.
The next critical component in my opinion is to ensure what is still owned is viable and will eventually be a worthy investment going forward. A few years ago we made a strategic change to shift our investments primarily into index funds in our general managed accounts and I’m very pleased with this decision. While many individual companies may hit significant rough patches during this time period, I am confident that entire sectors such as the financial index, health care index or consumer staple index will eventually come back stronger than ever.
From my vantage point the best thing to do at this juncture is to remain patient and let this panic play out. We all know that this virus situation, while discomforting, is temporary and while the economic pain our country is suffering right now is tough to conceptualize we are already seeing a global concerted effort to inject mind blowing amounts of stimulus into the system. With the oil decline we’re seeing a significant reduction in gas prices and while consumers are now staying close to home, there will come a day when the dust will settle and the pent up demand will result in another consumer led recovery. There will be a time to put the cash back to work but at this point I don’t see any rush to do so. I’m waiting patiently for more clarity with the virus situation and our government’s next steps.
It is truly my hope that during this time period our country can come together and become unified rather than divided. Let us all continue to check on our neighbors, loved ones and be available for any and all that require any special assistance.
Until next time
Abounds