Despite stocks mounting an impressive 9% relief rally today, investors limped into the weekend after an unsettling last couple of weeks that will undoubtedly go down in history books. The world is grappling with a perfect storm of extreme uncertainty around both public health and economic growth and from an investment perspective, this enormous range in potential outcomes has been particularly difficult for investors to digest. It is this absence of a firm understanding of the pandemic’s magnitude and duration, that has encouraged fear to fill in those information gaps. Furthermore, with increasingly obvious disruptions to our everyday life such as more closures, infections, and supply shortages emerging each day, fear has become even more pervasive.
As a result, markets appear to be assuming the worst and this fear has driven equity valuations sharply and broadly lower irrespective of individual company fundamentals or secular trends. Whether or not this market reaction is appropriate or overdone is as unclear as the ultimate fallout from coronavirus, but this is exactly why we build diversified portfolios for clients that utilize bond allocations to mitigate downside risk and volatility. One thing that we can be certain of, however, is that coronavirus headlines will continue to emerge and as long as the initial market reaction is fear, market volatility will remain very high. In addition, we also know that pandemics don’t last forever and while the economy will undoubtedly slow and likely even contract in the first half of 2020, over the long-term we expect the economy to rebound.
In the meantime, we expect more monetary stimulus next week after the Federal Reserve’s March 18th meeting as Fed funds futures are pricing in a 100% probability of at least a 25-basis point rate cut. Fiscal stimulus from Congress is still up in the air and we have been frustrated by the delay, but we hope both parties can put aside partisanship and make progress on a deal next week. We were encouraged by this evening’s press conference where President Trump declared a state of emergency to free up $50B in additional funds for the nation’s pandemic response as well as announced a strategic petroleum reserve purchase program to confront the oil price war that recently emerged between Russia and Saudi Arabia. We were also very pleased by the overall tone of the press conference as the Trump administration was much more serious and transparent about what steps they are taking and finally appears to be actively pursuing help from the private sector. Next week we expect more volatile trading, but today’s strong market rebound was a welcome boost to investor psychology as we enter what is certain to be a weekend hallmarked by nonstop coronavirus updates.
Regardless of how coronavirus evolves over the weekend, we want to assure clients that our day-to-day operations will go on as normal. We have prepared for contingencies and can work remotely if necessary. Please contact us with any questions or concerns whatsoever during these incredibly tumultuous times.
Ian Browning | Director, Investment Strategies & Shareholder
Peter E. Simmons | President & CEO