EQM Capital LLC 1Q 2020 Market Review – So Much for Predictions, Nobody Predicted This

Posted on Apr 4, 2020

I was just reviewing market predictions for 2020.  Nobody, I repeat nobody, predicted a global pandemic of unprecedented scale.  You can argue that the warning signs were out there, as China was devastated by COVID-19 and other countries started to be infected.  I even mentioned to clients to be cautious coming off a 2019 year with 30% market returns.  That prognostication was based on the systemic impact that China’s economic downturn might have on the rest of the world.  But nobody was prepared for this. No investor, no government, no country.  Could our country have been better prepared in hindsight?  Absolutely!  But as I tell my kids when they make mistakes: don’t play the blame game, take responsibility, move on, and work to fix it.   

Stock Market Suffers Record Declines

The Dow and S&P 500 logged their worst start to a quarter in market history as investors come to grips with an economy being held hostage by a still rapidly spreading COVID-19 virus.  The Dow declined 22.7% in Q1 2020, posting its worst quarter since the fourth quarter of 1987.  The S&P 500 Index, dipped 19.6%, experiencing its worst performance since the Global Financial crisis of 2008.  The NASDAQ Composite declined 14%, as technology and select healthcare names helped bolster its returns. 

On a positive note, despite liquidity issues and credit concerns, bonds have held up well in the current market environment, providing a much-needed diversification buffer for equity returns.  And gold has been a superstar, thanks to being a safe-haven store of value alternative to negative interest rates and future inflation hedge. 

The government has thrown $2 trillion in fiscal stimulus at the COVID-19 pandemic to support individuals and businesses.  In the last two weeks, 10 million workers have filed jobless claims.  The shuttering of the economy to protect human life by “flattening the curve” has created a staggering blow to the U.S. economy.  While some economic relief is on its way in the form of taxpayer checks and business loans, the severity of the economic impact is unprecedented. 

What Is an Investor to Do?

Stay diversified!  Maintain a diversified balance of non-correlated assets, tailored to your risk tolerance, time horizon, and financial goals. 

Rebalance!  Trim the winning asset classes, and top up the losers, to sell high and buy low and take advantage of reversion to the mean. 

Remain invested!  While it might be tempting to try to time the market in the face of uncertainty, time in the market, instead of timing the market, remains the winning approach over the long-term.

Be selective! There are segments of the economy benefiting from the current crisis such as those that facilitate staying at home and working from home. 

That being said, these are unprecedented times and there are some folks who, due to the financial impact of the virus, may need to dip into their retirement assets. The CARES (Coronavirus Aid, Relief, and Economic Security Act), waives the RMD (required minimum distribution) for 2020 and provides for a penalty-free early withdrawal of up to $100k to qualified participants.

A Few Things to Be Grateful For …

We live at a time when sheltering at home is indeed possible.  We have endless ways to socially connect with the outside world, entertain ourselves, and technologies to provide us with groceries, food, prescription drugs, work, healthcare, and education.  And private-public partnerships are developing as private enterprise is working overtime in tandem with the government to respond to this crisis, from making respirators and hand sanitizer to working on diagnostics, vaccines, and treatments.  The FDA is launching a new national effort to bring blood-related immunotherapies for COVID-19 to market as fast as possible. 

Ultimately, technology, science, and medicine will find a cure for this problem, not financial engineering.  Until then, stay at home and stay well so that instead of flattening the curve, we can finally crush it!


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