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It's only been 2 months but it seems like years

It's only been 2 months but it seems like years

| April 25, 2020

A lot has changed in the last two months since our last Stone Bridge get-together in late February on the S.E.C.U.R.E Act, which many of you were able to attend.  Brian Dobbis with Lord Abbott did a great job of breaking down changes introduced by the law and how they will impact retirement accounts for individuals and companies.  We had a great turn-out, the discussion was very information, and we were all very optimistic about the prospects of another year of positive stock market returns.  As a matter of fact, at the time of the meeting we were at or near all-time market highs. 

Yes, we were optimistic.  As many of you are aware, we usually make a couple of market predications in the early part of each year.  This year was no different, as we were hard at work in mid-February looking for what we thought were solid investment themes for the coming year. Even though markets had started off a little choppy we believed that the economic environment would lead to opportunities in international investments as well as energy and commodities.  We also believed that the Federal Reserve would remain largely on the sidelines so as not to appear to be influencing the November elections.   That was before.

Then the COVID 19 pandemic hit the US.  Since then, over 45,000 individuals lost their lives to the virus in the US alone, and for fear of that number being significantly higher, businesses have been asked to temporarily close, individuals asked to social distant themselves, parents asked to become educators for their children.  Now stores, streets, and parks are largely empty, and over 25 million people have filed for jobless claims.  All of us have been impacted by the virus, but some more than others.  Our thoughts go out to all of you whose lives have been upended by this virus, especially those who have lost loved ones.  It has only been two months since our February meeting, but it seems more like two years.  The word “uncertain” is what is most often used to describe the mood and outlook. 

In our effort to continue keeping you informed, we wanted to update you on some changes we have been making to many of your portfolios as well as make some quick market observations.  To say that markets were volatile in March is like saying the legendary musical group The Beatles wrote a couple of songs.  March was historic.  Over the course of 23 trading days, the S&P 500 dropped by approximately 34% from its all-time high.  To put that is perspective, during the Great Financial Crisis, it took the S&P 500 over 9 months before it fell as much from its prior high, and in 1987, it took around 40 trading days for the S&P to fall around 35%, ending with Black Monday.  And March’s volatility wasn’t limited to the stock market.  Government bonds rallied, but other bonds fell as investors sought liquidity.  During the worst 5-10 days, when even gold and government bonds were falling with stocks, cash was king.  A bottom was put in as the Federal Reserve stepped in with unprecedented Quantitative Easing and dramatic rate cuts.  The Congressional response achieved in less than 30 days was also record-breaking, as it sought to provide quick relief to all Americans, to small and medium-sized businesses, and even to look at back-stopping critical industries. 

As hospitality, travel, retail, and energy stocks collapsed, defensive stocks in the consumer staples, healthcare, and technology sectors held up better.  As the market rallied off of its bottom, we have been increasing clients’ exposures to defensive areas like consumer staples, healthcare, technology, and gold, and at the same time adding positions to energy and airline sectors, taking advantage of their severe price declines. 

We still find ourselves in unfamiliar circumstances.  We have yet to fully feel the economic impact of companies and citizens being forced to limited activity.  Will we see a V-shaped recovery on the back of massive global stimulus?  The sharp rebound in April is one potential indication.  Or will we see a more U-shaped, or flatter recovery as many analysts are predicting?  We don’t know, but we have been and will be looking for opportunities regardless of market conditions. 

We send our prayers and hope everyone stays safe.