Declines in Transitory Market

Market Update, 2020-03-23. This morning, U.S. equity futures are flattish after opening trading last night limit down  (-5%). Declines were due to concerns over escalating COVID-19 cases (NYC’s become a global hot spot) and their negative economic consequences weighing heavy on U.S. and global investor sentiment. The short-term failure of Congress to agree on and to pass an economic support package over the weekend is hurting sentiment this morning. While it certainly doesn’t feel like it, there are advance indicators in the options markets beyond the second quarter that are starting to calm down.  Any improvement in lower asset volatility would be very supportive of the all financial markets both bonds and stocks which have sold off in unison. This selloff has been indiscriminate in its scope of assets.

Declines and wild ride continue

The wild ride for equity markets continued last week. Significant volatility punctuated with another spill on Friday. As a result, the semblance of calm mid-week was lost. The S&P 500 fell 15% in the worst week since 2008. And energy and banks posted the biggest declines. All that said, the S&P is down 29% off its closing high reached only 6 weeks ago.  And WTI slumped below $20.

Swift declines

The swiftness of these declines has been the most striking feature of the move down. The S&P 500 peak-to-trough decline now sits near a “typical recession” move down. The move is on par with cycle corrections we’ve seen historically (i.e., 1997, 2011, 2015, 2018) that have ranged around 20%–30% that were recovered from in seven to twelve months. Deeper crisis/bear market drawdowns seen in 2000 and 2009, were 49% and 56%, respectively. At this point, you could argue that the market has priced itself for recession and worse.

Aggressive policy response

Last week saw another wave of aggressive policy response that helped steady the market declines mid-week. The Fed was first out of the gate last week with a move on Sunday. Among the key moves were another 100-basis point cut to the fed funds rate, bringing it down to crisis-era lows of 0%-to-0.25%; and large-scale asset purchases totaling $700 billion, including Treasuries and MBS.

Customized plan is vital

We want to reemphasize the importance of remembering your particular financial plan and investment allocation. Your customized plan is based on your goals, risk tolerance and time horizon. It is constructed with the knowledge that there are going to be periods of extended market decline. And it is a part of being a long-term investor.

Everyone is going to feel fear when the stock market dips into bear market territory as it currently is. That’s completely normal, and it’s why your advisor and the investment team at Oak Harvest are here. We are here to help you deal with that emotional rollercoaster, and to prevent long-term investment decision making based on short-term events, fear, or panic. We remain committed to making the best investment decisions for our clients and their financial plans.

Resources

• Find more information and help on our YouTube Channel.
• Check out these helpful podcasts by Chris Perras, CFA®, here.
• Please see the attached chart. It is a good reminder that “time in the market not timing the markets” has best served investors over time.  And what the team at Oak Harvest base your financial plan on.

Weekly market updates contain general information and expresses views of Oak Harvest Investment Services. Data, articles, and information cited are believed to be reliable at the time of creation, but is not guaranteed. Content should not be regarded as personalized investment advice. Also, views and opinions expressed may change without notice. These do not constitute a recommendation, or an offer or solicitation to buy or sell securities. In addition, Oak Harvest makes no assurance as to the accuracy of any forecast made. Past performance is not indicative of future results. Investing involves the risk of loss.