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PFG Market Update : March 6th, 2020

Investment

In light of the heightened market volatility and elevated concerns about the virus, we wanted to reach out to express our thoughts on where we currently sit. As of this writing there have been more than 100k confirmed cases of COVID-19 with the death total in the U.S. at 14 and rising. The virus knows no borders and contagion is unavoidable. We sympathize with all those that have been directly impacted and we certainly understand the behavioral emotions exhibited by the rest of us that can only imagine the worst. We watch it on the news and interact with others on different media platforms. Disinfecting wipes and hand sanitizers have never been in higher demand and more difficult to purchase. Corporations are making noticeable changes to travel plans and in many cases restricting business travel. Seattle area schools have also been canceled for weeks to try to prevent additional outbreaks. Cruises…probably not the best place to be right now. The dominos are falling and many of us are concerned, rightfully so, where this story goes next.

 We still advise people to focus on the long term with their retirement accounts. The younger you are; you have the benefit of time. This is the point where you want to be deploying your cash into stocks for long-term returns. If you can increase your monthly contributions into your 401k, investment accounts, business opportunities, etc. you should be taking advantage of market duress. The more financially secure you are; you have the benefit of utilizing other assets for your cash flow needs. This isn’t the first and it won’t be the last market correction. If you can expand your time horizon, market prices will rebound and recover. For those that are approaching retirement and are dependent on their retirement assets to survive, you may want to reassess your risk tolerance and readjust your asset allocation.

 It is important to remember that the economy was exhibiting signs of strong momentum prior to the outbreak. February payrolls numbers increased by 273k and the unemployment rate fell to 3.5%. ISM non-manufacturing PMI was also strong and indicating expansion. The obvious question we now face; can the economy withstand the economic fallout from the virus? The U.S. is a services based economy. We rely on confidence to support growth. In other words, people dining out at restaurants, renovating their homes, traveling, etc. How do people respond if schools begin to close across towns throughout the country?

 Again, these questions don’t have any answers right now and the market is trying to sort through the range of possibilities. Is this more of a transitory shock like Long-Term Capital or the stock crash in 1987 or is it systemic like the Financial Crisis? We feel like it is more likely to be the former versus the later. If the virus can be contained, we are likely to have a strong rebound by the end of the year. The 10-year Treasury is at a shockingly low level of 0.75% right now! If you have a mortgage, now is the time to inquire about a refinance.

 We feel that there will likely be a retest of the lows and a good probability that we establish a new low. Rarely do you see a “V” shaped recovery like December 2018. More often than not, the markets bounce higher off the initial decline only to lose strength and eventually retest the lows. We have support around 2,850 on the S&P and the next level below that is around 2,725. If you are looking at your portfolio, now may be a good time to “upgrade” the quality by moving out of stocks that exhibit poor momentum and technical patterns and moving into stocks that have better characteristics to reduce risk.

 Thank you for your continued support and please reach out to us if you feel the need for further discussion. It is important to have a Team of advisors that can talk you through this difficult period and we would encourage you to read the Bull & Baird posts Michael Antonelli and Baird’s Market Commentary for further insights.