PFA Updates

Mar 03, 2020

Ok friends, take a deep breath...we are going to be okay.  Since the market peak of 02/19/2020, the S&P 500 has dropped a little over 14%.  That puts us into "correction" territory, not a bear market and certainly not a recession.  Stock market values are similar to last October, so we still retain some of the growth from 2019.  As stated by Bankrate.com, "in the 23 corrections since World War II the average price drop for the S&P 500 has been 14 percent and they normally last 4.4 months."  Remember the Zika virus of late 2015?  According to CNBC, the drop lasted 66 trading days, the S&P 500 lost 12.9%, and the markets recovered some three months after the bottom and went on to new highs less than a year later.  Remember SARS in 2003?  CNBC reports the drop lasted 38 trading days, the S&P 500 lost 12.8%, and the market recovery followed the same pattern as the Zika crisis.  In a 2/27/2020 conference call, JP Morgan economists stated "history would suggest, with health events, the recovery time is in months, not years.  And it's typically a "V" shaped recovery, the market goes down quickly and recovers quickly."  Yes, there are many unknowns yet and we believe volatility will continue, but we are confident in the recovery because economic data and economic momentum in the US remain positive.  And further good news is Fed Chair Powell stated on Saturday, "the Federal Reserve is closely monitoring developments and we will use our tools and act as appropriate to support the economy."

Back in late January, our Investment Committee made the decision to do three things in client accounts in anticipation of a downturn: we rebalanced all models to their appropriate stock/bond allocations; for clients who take regular withdrawals or have a required IRA distribution in 2020, we sold stock funds after the mid-January market peak and moved the expected withdrawal amount to money market; and as part of our reallocation, we moved between 5-10% of account values in most investment models to a short term bond fund to further "de-risk" portfolios, leaving us monies to re-invest if the market dropped.  We think the actions were appropriate and we are currently monitoring market and economic news to determine if additional actions are required.

We are encouraged by the mobilization of medical experts and government agencies to find a quick solution.  Governor Newsome of CA said "look everybody in this country is rightfully anxious about this moment, but I think they should know we are meeting this moment with the kind of urgency that is necessary."  US HHS Secretary Azar said yesterday, "how big this gets we don't know, but we have the most advanced public health system and surveillance system in the world.  We are actively working on a vaccine.  We are actively working on therapeutics, the diagnostic is out in the field."  Harvard University professor Elizabeth Phelps said in an interview, "in San Francisco, it's far more likely to be killed by a car than Covid-19."  And as reported by USA Today, "it's important to keep perspective, experts say.  This winter, the flu has hospitalized about 280,000 Americans and killed 16,000; there are 60 confirmed COVID-19 cases in the US and two deaths."

We have also included links to two excellent articles below for perspective: one by Economist Brian Wesbury, and an interview by the ABJ of SUMMA's Dr. Thomas File.  If you would like to discuss your account allocation or your 401-k holdings/strategy, please feel free to call us.  We are ready to be of help, and a calming voice.  I will close with a quote from financial journalist Nick Murray, "This too shall pass. Optimism remains the only long-term realism."  Have a good week.

Akron Beacon Journal - Expert Answers Questions about Coronavirus
First Trust Article - Time to Fear the Coronavirus?