Quarterly Update

Before I start on this quarterly update I wanted to offer a few words about the recent relief/stimulus package from Congress. Much ink has been spilled writing about it in recent days, so I won't go into the details here. Instead, feel free to reach out with questions. The short answer about whether or not you stand to benefit is... yes! You've likely heard about money going to individuals but there's also money available for small businesses and independent contractors. So, if you've been impacted financially by the coronavirus you need to look into your options. Now, on to my recap of a truly nasty quarter for the markets...

In what seems like a different world from our current vantage point, markets started 2020 by rising amidst a healthy economy and in the face of continued trade uncertainty and even presidential impeachment hearings. But as the first quarter (Q1) hit mid-February the situation changed dramatically. The quarter ended being one for the record books, and just about all the records were bad.

Fortunately (or unfortunately, depending on your perspective), the US economy began the year on solid footing. Housing was doing well, we were at so-called full employment, there were signs of a manufacturing resurgence, and risk appetite was high. Then out of the blue came the coronavirus outbreak that needs no explanation.

As of this writing there are over 300,000 confirmed cases (and rising rapidly) in the US and more than 1 million globally. The death toll continues to climb at the rate of about 5% of those infected. In response, many governments around the world began shuttering their economies and accepting the myriad tradeoffs between stay-at-home orders, self-induced recession, and larger loss of life. Governments and central banks crafted relief packages to help soften the emerging economic blow. In the US, Congress passed its largest ever fiscal stimulus at over $2 trillion. The Federal Reserve unveiled a slew of financial crisis-era tools and decreased short-term rates to zero to help prop things up. All of this in about six weeks; quite the quarter, to say the least!

Accordingly, markets around the world were extremely volatile and fell precipitously during Q1 before clawing back a bit at quarter’s end. Here’s a roundup of how major markets have performed so far this year:

  • US Large Cap Stocks – down 19%
  • US Small Cap Stocks – down 31%
  • US Core Bonds – up about 3%
  • Developed Foreign Markets – down 23%
  • Emerging Markets – down 24%

Read the rest by clicking the link below...

Positive signs in the markets were few and far between. The quarter saw the fastest fall for stocks ever from a recent high (30+% in about four weeks), a handful of the worst days since the Great Depression, the most volatile March in history, and the worst Q1 for stocks ever! But it wasn’t entirely bad. Amid the worst of it, stocks also had their best single days in decades and staged a rally of over 10% in a week. In short, market movements were fast and furious and trying to trade them would have been perilous.

Some of the best performing sectors during the worst of the volatility were Healthcare and Consumer Staples, down around 15% each. Energy was the worst performer, down about 45%. The price of oil cratered on demand concerns and a standoff between OPEC and Russia. The commodity ended Q1 at about $20 per barrel, down around 62% this year.

Bonds were generally positive during Q1 but not without some excitement. The yield on the 10yr Treasury, a key benchmark, fell to less than 0.5% briefly before rocketing up to over 1% in a matter of days. This panic selling caused brief but nasty “dislocations” between the pricing of bond funds and the value of the bonds they held. A popular conservative bond ETF fell by 5% in one day, something almost unheard of. Funds that owned highly rated corporate bonds fared worse, some dropping 7% and 8%. Even California municipal bonds fell as investors simply weren’t buying. Fortunately, cooler heads prevailed after the Fed stepped in and calmed markets. But problems remain in the market for lower quality bonds, however.  

Many Americans so far seem to be taking stay-at-home orders in stride and reported higher than expected confidence in March. As time drags on this will change. Late-March saw the first major spike in unemployment with 3.3 million Americans filing for assistance. As of this writing the following weekly number came in at about 6.6 million. These numbers are simply off the charts and how this impacts our economy is anyone’s guess.

The stock market looks ahead and has already priced in a short and deep recession. But the outlook is highly uncertain. Volatility levels will remain high until we get some clarity on the path to eventual containment of the outbreak. Prudent asset allocation and diversification have helped so far and should continue to do so. It’s never been more important to stick to your plan and be optimistic for the future. Some reassurance can be helpful during uncertain times, so please ask questions as you have them.

Have questions? Ask me. I can help.

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