By: Ralph C. Freibert III, Chief Investment Officer
The selling overnight has taken full hold, with S&P futures down 5-percent. Expect the volatility today to be dramatic, as panic over the Coronavirus-19 overshadows any economic data. The Jobs Report on Friday showed a strong increase in employment, far beyond the estimates and it was completely overlooked.
Investors are selling stocks (and bonds) worldwide and moving to cash and U.S. Treasuries. The 30-Year Treasury has joined the rest of the yield curve below 1%.
As I noted at our Outlook, I expect volatility, but the economy remained strong. I also stated that the market is a leading indicator of the economy. This widespread panic may take hold of the economy and push us into recession.
The U.S. government has now warned against cruise ship travel, and many companies have halted any business travel. Italy has closed schools for the balance of the year, until the virus is under control.
It is my belief that the panic is unwarranted, but that does not mean this will not affect the economy. In fact, I now believe the economy has already been affected as the price of oil has dropped amid lower demand, travel is slowing and could grind to a slow crawl except for the most critical, and investors begin taking action to protect the gains.
For those in attendance at the Outlook, I stated, “I would not be surprised to see another 20% decline in the market”, and we are approaching that mark if today’s selling holds. Of course, investment portfolios will be affected; however, we have been defensive for some time. We hold a large amount of U.S. Treasury bonds, especially short-term maturities and should weather this storm well.
However, all portfolios will be in the red until this storm blows over. I reiterate, this virus has a mortality rate that is not much different than the annual flu and affects the elderly, mostly. I do not plan to take any additional action with regard to this recent market move, but as prices become more reasonable, compared to earnings, I will begin to increase our equity allocation back to the normal range, but we have a ways to go before prices reach that level.
Don’t be surprised to see prices back at or below the decline at the end of 2018, wiping out all gains in 2019, but remember this is a normal process of volatility that happens during market cycles. Our bond allocations will continue to provide income and liquidity and the reserves we hold for emergencies will allow the cycle to stabilize. At that time, a better course of action will emerge.
If you have not scheduled your annual review. Please do so. We will be calling this week and next to complete the reviews prior to the end of the quarter.
We wish all of you a blessed week and know that you and your families are always in our prayers.
This commentary reflects the personal opinions, viewpoints and analyses of Planning Associates Wealth Management, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Planning Associates Wealth Management, LLC or performance returns of any Planning Associates Wealth Management, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Planning Associates Wealth Management, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.