By: Ralph C. Freibert III, Chief Investment Officer
The title above seems silly at first. How can you make sense of this market? But, when you think about the current actions taking place, market reaction makes perfect sense. Let’s review some of the key points heading into 2020:
- Stock valuations were stretched above a Price to Earnings (P/E) multiple of over 30, significantly above the average of 16,
- Earnings growth had leveled and even began to decline (note: earnings were not declining, the pace of growth of the earnings was declining; just not at the rate as before),
- Corporate balance sheets had significant growth in the debt they carried,
- The Fed was in a tightening mode, though rates remained low by historical standards.
These factors left little room for error, let alone a worldwide pandemic with travel restrictions, business and school closings. Irrespective of the casualty rate of this virus, illness and the steps to stem its spread have ground to a halt most business activity.
However, as we have stated repeatedly, it is important to keep these things in perspective. First, this is not a virus with a very high mortality rate. Second, the G7 governments have banded together to work in concert to provide liquidity to the markets and families. And finally, it is not likely that this flu will continue beyond the spring (they call it “flu season” for a reason).
The sun will come out tomorrow and the pent-up demand will provide growth once again. There has been and continues to be a lot of cash in consumer bank accounts. I saw the retail sales number and they were up over 600% month-over-month. That is the result of panic demand and wiped out shelf inventory. Heck, toilet paper likely represented half of that sales growth. The next month will likely see a sharp demand decrease as people shelter at home and work together to reduce person-to-person contact.
Andrew and I are doing our part by working remotely, as reported in our email earlier today. This is mostly because we do not want to spread the virus and because we wish to stay free from illness to do our jobs for you. But we are not overly concerned by the current market action, nor the impact to your ability to reach your long-term goals, even if you have already retired. Your portfolios are invested to reach your goals.
That doesn’t mean I am advocating continuing to spend on unnecessary items. That is simply not prudent. But it does mean that when the sun comes out and we go back to normal, it should be business as usual.
We will be doing our parts to continue to monitor the markets and make any changes that we feel are necessary, but I do not expect any at this point. If you are getting tired of these, almost daily, commentaries I apologize. However, we feel it is necessary to provide our thinking while things seem so bad from news reports.
Both Andrew and I want you to know that we do pray daily and we pray for each of you and your families. We hope for you to be safe from any impact from this virus, especially our older clients who we feel should take more drastic measures to protect themselves from infection. We have offered to lend a hand to anyone who does not have resources to pick up an emergency item, and I am going to put on a pot of beans for anyone who needs a meal (or wants one, my beans are pretty killer).
Stay safe and don’t hesitate to call!
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.