The updated reports of the coronavirus have monopolized headlines and greatly impacted the public markets this week.

The disease’s bearing on the global economy is very difficult to quantify, we have already seen the negative ramifications for the global communities and slowing markets for goods and services.  We believe that the influence on economies is likely to be more protracted than expected.  The foreign health agencies have warned of the continued spread of the disease, they are working hard on the containment of the virus. 

     From a financial market perspective, the recent week’s downturn has erased the gains in the stock market over the past 12 months.  Some return of gains was inevitable, in our view, as the market had reached historic high valuations.  Notably, the losses demonstrated in the past week pales in comparison to the market gains in the past 10 years.  Since early 2009 to late 2019 the S & P has expanded approximately 340%.  We believe this broad perspective may help to suppress any impulsive knee-jerk reaction to sell or make a poor short-term decision.  The swift losses in the market are never ideal, we are not sellers in this market.  The rapid shift of market sentiment lead to a surprise 50 BP (1/2) point cut by the Fed to boost confidence on March 3^rd.

We were putting cash to work this week, buying at lower prices.

    The market has traded with great speed and volume in addition to the precipitous drop this week.  It is important to know that we have positioned our client portfolios with care, and we have created diverse portfolios purposefully.  This tactful approach to financial market exposure helps us prepare for such market volatility.  Our goal is to invest in the market by selecting investments that have price upside and protect holdings on the downside.  We are not momentum based traders, although we are engaged in the markets on a daily basis.

Recent market moves are creating buying opportunities, as the market is moving to an oversold position.

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…. 

What happened in August? 

August was a rough month, as the volatility continues.

     August was head spinning, marked by many measures to be the most volatile month in 2019.  Even with a strong finish in the last week of the month, the market finished down 2%.

     The top performing sectors in the S&P were technology +29%, Real Estate +28%, and consumer discretionary +21%.  (Non-essential goods) The bottom sectors were energy, health care and materials.  The S&P year to date is +18.3% amidst the August volatility.

     Although the sparing between Washington and Beijing continues to dominate the headlines and influence short-term moves in the market.  Investors grappled with as lack of clarity on the trade issues, global growth and a Brexit showdown.  The fears about escalating U.S. and China Trade tensions sent the stock market index tumbling down 2.3% three occasions in August. 

     September is proving to be a different month!  Today stocks surged and Treasuries are tumbling after news of the trade tensions have eased.   We have experienced an up-market gain in five of the last six market sessions.  We are very cautious about the prospects of a trade deal coming to fruition, although some trade concessions would be very positive for the economy and the market.  This President likes to “win”, even though he does not have international support all countries will benefit from the U.S. leading these negotiations with China.

     Even though corporate earnings growth has slowed down, the economy remains strong and unemployment is at an historic low.   We realize that it is very tempting for people to want to adjust their portfolios to match the daily headlines, we find this activity to be very counterproductive to portfolios.  Schenley has been advising clients to stick to their long-term asset allocations.