1000 Point Drop – Feb. 2020 Market

By: Elizabeth Genter

Markets are Volatile – Prepare don’t predict 

The market dropped yesterday -1,032 all headlines are about the Coronavirus. The previously steady market took a dramatic decline due to the ongoing news about the spread of the virus.  This subtle shift implies the market concern about supply chains and how businesses will continue to function as the virus spreads. The news of the Coronavirus cases spread outside of China particularly to Japan, South Korea, and Northern Italy.  The borders of Japan and South Korea were shut down, creating additional fear.  All countries are calling for heightened protection and plans, such as the strategic plan being created in the US.

The economy has been priced to perfection, as we have experienced a steep run-up in the market. The values of many companies have been stretched and the prices have climbed to a lofty level.  In late 2019 we witnessed the absurd valuations and high prices for Beyond Meat and the blow-up of the WeWork IPO, which never came to market as an initial stock offering. The valuations for the few market leaders:  Google, Amazon, Apple, Microsoft, and Facebook have been leading the market and have had a meteoric runup in the past six months. For example, Apple has gained $110 points in the last six months.

 This has created a very narrow market consisting of a few stocks leading the entire market. 

 We have been waiting for some sort of sell-off, in our view, this is an opportunity to purchase equities at a lower price point. 

Over the past few weeks, we have seen signs of the market’s crazy trading to historic highs, the market seemed to go up despite negative news.  There are two short-term certainties, one, the virus is having a global impact, secondly, the virus will eventually go away.  

Volatility is the friend of the buyer, using the volatility to purchase desired stocks on down days.  It is the same experience or euphoria of buying an item on “SALE”!    

This is not the time to sell– it is a time for patience.  

An equity investor or saver is a long-term thinker with a longer time horizon.  The Coronavirus is a short-term event with short term consequences.  When we think of a company’s earning power, we think in terms of four to five years, not just the current quarter.  Consumer stocks in the short-term pull-back or drop in price with a pullback or market event, creating an opportunity for you own or buy at a lower price.

This greed & fear cycle leads an investor to buy high and sell low or the thought of reaching for more risk to receive little reward.   

If an investor has a longer time horizon this leads to a smoother ride and better long-term results.   

Our thoughts would be to not sell in times of volatility, although in a slow shift to higher-quality stocks with dividends versus the high-flying growth stocks.  These are not necessarily energy stocks, although stocks with steady growth and a dividend.  Our client portfolios are protected, as they are diversified into many different asset classes and across global economies. It is wise to have a percentage in bonds which creates stability in a portfolio and income.  The music doesn’t play forever….