“The human mind is our fundamental resource.”

President John F. Kennedy spoke these words 59 years ago in a special message to congress in reference to our progress as a nation. It has been a century since we have experienced a pandemic the magnitude of COVID-19. Over the last 100 years, we have experienced other impactful events, including a depression, recessions, wars, and other pandemics. The common denominator when we go through these is that we have always recovered. We recovered because, as a society, we are incredibly resourceful and resilient. When we are knocked down, we make changes, we adapt, we learn from our mistakes, and we find ways to advance. Nobody knows how the COVID-19 chapter will unfold; however, we believe in the same common conclusion – we will get through this.

A sign of how far we have advanced, just last week, Apple and Google, two of the largest technology firms in the world, joined forces to develop contact-tracing apps. Apps designed to notify smartphone users if they have come into proximity with people infected by COVID-19. Amazing to think that less than 13 years ago, smartphones didn’t exist, now they are being used to materially aid in health events.

The US stock market (S&P 500) declined 20% during the first quarter; its worst-ever start to a year. The quarter, in our review, was marked by three distinct phases:

• Contentment: from January 1st until February 19th the stock market gradually increased by 4.8% while exhibiting low volatility.

• Dislocation: from February 19th until March 23rd, the market declined by nearly 34%. Very little “worked” during the quickest decline of that magnitude. This was a period when virtually all asset classes declined, and stocks experienced record highs in volatility. Even US Treasury bonds, which are typically viewed as a safe-haven, experienced bouts of volatility.

• Repair: from March 23rd until March 31st, in just six trading days, the stock market gained back 15% (which continued after quarter-end). Trading volume decreased from heightened levels and asset classes began to behave more “normal.” We believe two efforts helped initiate some of this market repair; the Federal Reserve cutting short term interest rates, and the passing of a stimulus package by the federal government.

Also during the quarter, international stocks returned -23% for both developed and emerging markets. Real estate and commodities broadly returned -28% and -42%, respectively. The bond market, although more volatile intra-quarter than normal, posted a first-quarter return of just over 3% as Treasury yields declined to record lows.  Just to exacerbate the situation, an oil price (supply) war between Russia and Saudi Arabia led to a significant sell-off in oil prices.

The actions of the US government and the Federal Reserve have been guided by lessons learned from the 2008-09 financial crisis: do whatever is necessary to get through this time period with the least amount of economic damage. More specifically, we believe the guiding principles include evaluating the items below. These are not intended to represent exactly what will happen, rather a list of possibilities:

What is required?

• To date, this would include all of the modifications to social behavior and the financial intervention into the economy

What are the situational events or opportunities?

• Continue to encourage remote working, whenever possible and feasible with business operations

• Less populated states may open in advance of more populated states

• Vulnerable populations continue with precautionary measures

What incremental actions could be taken?

• Activating the parts of the economy that are slowed or stalled as soon as possible

• Modified social behavior changes could continue to be observed (i.e. distancing, masks, rotating workforces, working remotely)

• Possible additional financial intervention

We believe these same guiding principles (required, situational, and incremental) appropriately reside within our actions for you. Our focus remains on:

• Uncovering planning opportunities, especially given changes with the new CARES Act

• Maintaining a diversified investment mix, incorporating time periods specific to your financial life

• Staying disciplined, especially during periods of heightened volatility

• Seeking rebalancing opportunities with the intent of expediting portfolio recovery

• Tax-loss swapping, resulting in reduced tax implications moving forward

A favorite message from Mihaly Csikszentmihalyi, psychologist, and author of the book Flow; it is human nature to believe that where we are is where we are always going to be. We are living in a challenging time; however, this will pass. Beyond this pandemic we will face new and different challenges. As a nation and global society, we will face those head-on and the lessons learned from today will make us stronger.

Watch the replay of Market Update Q1 2020 webinar.

We hope you and your loved ones are healthy and safe. Thank you for your trust and confidence.

Sincerely,

Thomas Fee, Managing Director 

Jason Ranallo, CFA, Director of Portfolio Management                                             

Dan Powers, Portfolio Management

Market Indices: S&P 500 Index, MSCI EAFE International Index, MSCI Emerging Markets Index, Bloomberg Barclays US Aggregate Bond Index, S&P Global REIT Index, S&P Goldman Sachs  Commodity Index. Market history data source: Factset, Inc.

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