PFA Updates

Mar 13, 2020

Yesterday, the stock market had the largest one-day decline in the past 30+ years. The S&P 500 is now officially in a Bear market. No matter how much lipstick you put on the numbers, it's still ugly. So what soothing words does Tom have today? First, don't let fear and emotion rule you. Let's look to current facts, history, and "the numbers". I am not trying to downplay Covid19; it's real, it's spreading, and people have died from the virus. It's the first global health crisis reported through social media - so people are getting updates on their phones, ipads, and computers every 15 seconds, and from sources that may or may not be credible. Add in a lack of confidence in the response from global government leaders, and it's easy to understand why there is more panic.

It is unfortunate, because the US economy was accelerating in January and February of 2020, as reported by economist Brian Wesbury in a conference call on 3/10/20 - "jobs, spending, and wages were all improving...we were on track for 2% growth in the first quarter of 2020. Yes, there will be an impact to our economy, but no one knows how severe at this point and it does not have to become a recession." It's only been a few weeks since this all started in the US. The good news regarding Covid-19 is China reported it's lowest tally from the virus since January, and scientists mapped the genome in record speed allowing lots of very smart people to work quickly on a vaccine; there are vaccines in phase 1 trials in less than 3 months (NY Times 3/13/20). Though the threat is still growing worldwide, China, Japan and South Korea, the early reporters of the virus, have all peaked and are reporting fewer cases (Brian Wesbury 3/10/20).

So what are we telling clients during our current client reviews? Most importantly: don't panic, this too shall pass. We have diversified portfolios that are designed to weather these types of storms. Unless you have changed your long term view, do not sell any stock/equities at this point...if anything, we should be buying more stock. The stock market recovers 100% of the time to new highs (JP Morgan Guide to Markets, 13). f you have an unexpected need for a withdrawal, our models hold bond mutual funds that have made money in the last 12 months (FEPIX up 10.86% per Morningstar 02.28.2020). And for clients that have required IRA withdrawals, we set aside enough in money market funds in January for your withdrawals through the end of 2020. For perspective, as of the close Thursday 3/12/20, the S&P 500 was down about 27% from its peak on 2/19/20. Our models are down about the following percentages: Conservative -13%, Balanced -15%, Moderate -16%, and Growth - 20%. Diversification works long term and as I mentioned it before, if clients have an unexpected need for income we have bonds we can liquidate that have made good gains in the last year.

There are two attachments of interest. The first is from Davis Research showing the history of Bear and Bull Markets from 1925 to present. Note how much longer Bull markets are then Bear markets. The second attachment is an excellent article by Brian Levitt, of Invesco, talking about why we invest in stocks for the long term. As I write this, US stock market futures are positive, so I am hopeful for the day. We do understand clients are feeling unsettled, so if you have any questions about your portfolio, please feel free to contact our team. Have a good weekend.

-Tom

Invesco - Bear Markets