Market Perspective 03/13/20
This sequence of events took place over just three days. A true story with changed names. Did you have a similar experience?
On Monday, George went to Costco and filled a cart full of food and household goods. George wanted to replenish his own cupboards and get some extras to top off the freezer “just in case”. Two days later on Wednesday, Liam visits Costco, the same day that the World Health Organization declares COVID-19 a global pandemic. The store is packed full of hectic shoppers many of whom are filling their carts full, primarily of water and toilet paper. Also on Wednesday, Ryan places an order on Costco.com. Free shipping and no lines which seemed like a slam dunk. Thursday, Jennifer goes to Costco right when they open at 10 am. There is a long line outside the building. Part of Ryan’s online order is canceled due to a lack of availability.
Whether you’re a Costco shopper or a stock market participant, emotions can dominate decision making. This can cause people to make decisions that they wouldn’t normally make, like sell stocks in a panic or double- (quadruple-) down on household goods. There’s a herd mentality that often takes place when emotions are high. It’s ok to feel this way, after all, we are human. It’s part of our DNA.
Stock markets, specifically the S&P 500, are down 23% from the highs set just one month ago. The past two days were among the worst on record.
Our message: we do not make two-day decisions with 5+ year money. We will come out of this market decline. We are confident in this because of the overwhelmingly resilient history of financial markets. Yes, the daily news feed can make us feel unnerved. We are here for you.
So what happened this week?
Corona Virus (COVID-19) is declared a pandemic by the World Health Organization
Travel restrictions are put in place between Europe and the US
US Stock markets (S&P 500) react and decline 14% over a 2 day period
Down 20% from the highs of a month ago
Shorter-term rates decreased (prices increased) while long term interest rates were mostly unchanged
Part of this was the market reacting to the Federal Reserve’s recent announcement to cut short term borrowing rates by 0.50%
The price of crude oil fell as Russia and Saudi Arabia engage in an oil price war to capture additional market share
Volatility in the financial markets is high; at levels not seen since the 2008-09 financial crisis
US Federal Reserve announces $1.5 trillion in new liquidity to help stabilize the market
Similar central bank liquidity measures being introduced overseas
College classes, Broadway shows, NBA, NHL, and March Madness (among others) were canceled or suspended as social distancing becomes a defense to slow the spread of COVID-19
By all estimates, the impact of COVID-19 will get worse before it gets better. COVID-19 is impacting corporate earnings and likely will drift into employment numbers. There are few truisms more accurate than “the market hates uncertainty.” We’ll add that “emotionally-charged decisions” can be founded in fear or greed. Investment decisions should be thoughtful and if adjustments are warranted they need to be made with careful consideration.
Jason Ranallo, CFA
Director of Portfolio Management
vectorwealth.com/jason-ranallo
Thomas G Fee
Managing Director
vectorwealth.com/thomas-fee
Office phone: 612-378-7560
www.vectorwealth.com/client
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