Posted: March 10, 2020 in: Investment Markets

Recent Market Upheaval

We are waking up today to another very volatile day in the financial markets.  There has been panic selling overnight.  US stock futures are indicating stocks will decline 5%.  European and Asian stocks have declined as much overnight.

The 10 yr. treasury bond yield, a benchmark for interest rates and a safe-haven asset, has fallen to 0.38% – a historic move overnight.   (Lower yields = higher bond price. Simply said, bonds are appreciating.) Oil prices declined 30%.

The impetus for the overnight panic has largely to do with oil prices declining 30% overnight.  The Saudis and Russians are not playing nice as part of the OPEC alliance and as a result, have put tremendous pressure on the oil market.  In addition, some of the selloff surely has to do with the quarantine in Italy and people around the globe adjusting to a new way of living with the virus.  Near term, growth will slow as a result of this virus.

Long term, lower oil prices and low interest rates are stimulative for an economy as people refinance their mortgages and low fuel prices put more dollars in consumers’ pocketbook.  The good news is the US economy went into this sell-off on relatively strong footing.  Banks are not leveraged as they were in 2008.  Employment was strong.

While the coronavirus is undoubtedly scary and there is much unknown, when you think about the number of people that live in the US (about 327 million) vs the number of people who we now have died from the virus (in the high 20s), it offers you a little perspective.  It is true the number of cases will grow because we can now test and it is likely there will be additional deaths.  However, we are indeed very lucky to live in a country where we have excellent medical care and yes, there are many, many others who are not as lucky who will surely suffer.  If we all do our part – continue washing our hands, stay home if we’re not feeling well, shop and explore local, and take care of one another, we will remain strong enough to fight off this virus…and help other parts of the globe that need our physical and financial assistance.

The speed at which the market has been moving over the past two weeks has been exceptional, but not at all unanticipated.  In our meetings, we’ve discussed the fact that this market has gone without a massive selloff or correction for over 10 years.  We discussed that there is usually an unknown caveat that ignites a selloff and ultimately a recession.   Coronavirus was our unknown.  The trouble is often when these dramatic selloffs occur, they uncover other cracks in the system or create another seismic event in the economy.  The price action in oil could be that seismic wave.

While all of this is extremely uncomfortable, we do not feel that now is the time to panic.  We are certainly in for a rocky ride for the next few months and we want to be as transparent as possible with you.  It is very possible that we are slipping into a global recession.  (By the time we can confirm that we are in recession, the market usually has started to recover.)  It is also very possible that we could have a speedy recovery from this selloff.  Timing of these moves is highly unknown.  Often when things seem the bleakest is when the market rebounds.

The portfolio we built for you is diversified, global and built for the long-term.  We have extensive conversations with you about your cash flow and needs from the portfolio so that we can weather these storms together.  We have the cash you need set aside so that we do not have to sell assets in a declined market.  We have encouraged you to maintain an emergency savings for these very events.   You may need to tap into these savings and we stand ready to discuss any and all questions related to your financial circumstances.

We encourage you to reach out to us; we are here for you.  We want to talk through your fears and hear your thoughts.  Overall, we promise that together we will get through this.

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