Mar 11, 2020

Special Market Update: What's Happened and Steps Forward

We're providing an update on what we know and don’t know about the market volatility cause by COVID-19, and the potential steps forward.

With the continued market volatility, we provided our clients with an update to help put them at ease. We have a team monitoring the markets and, more importantly, their portfolios to ensure they are properly positioned. We thought you’d find the information provided below valuable as we cover what has occurred and potential next steps.

 

What has happened:

  • COVID-19 (Coronavirus) started in China where over 40M people were quarantined. The country is now getting back to work.
  • The number of confirmed cases in China has stayed steady, while the number of recoveries continues to rise (Figure 1).
  • COVID-19 has spread across the globe with hotspots in South Korea, Italy and Iran – this was one of the key triggers for dragging the markets down.
  • Italy initially announced quarantining one quarter of its population, however news is now breaking that Italy has extended the quarantine to the entire country until April 3.
  • With major events and travel being cancelled across the globe, the travel industry has been severely impacted – furthering the economic hurt.
  • OPEC+ (Organization of the Petroleum Exporting Countries) has fallen apart as Russia and Saudi Arabia have not agreed to production cuts and will instead increase production, sending oil prices down over 20%.
  • Global stock markets are approaching or are already in bear market territory (bear markets are defined as a decrease of 20% from their peak).
  • Bond yields are approaching record lows or are already at record lows in many markets as investors look for safety.
  • Central banks have provided significant rate cuts to help support economic growth.

Figure 1: The number of new confirmed cases is trending down in China.

Cumulative number of confirmed Coronavirus cases in China

Number of new confirmed Coronavirus cases in China

Source: NBF Economics and Strategy (data via https://systems.jhu.edu/research/public-health/ncov/ as of March 9, 2020).

 

What we know:

  • The COVID-19 spread will continue. We are hopeful that it will follow the China pattern and eventually be controlled in a relatively timely manner.
  • Global economic growth will take a significant hit in Q1 and into Q2 at a minimum.
  • There will most likely be more quarantines. These could be in the form of countries, cities, parts of cities, self-quarantines, or government-imposed quarantines.
  • With extensive coverage and easy access to updates through the media and online, we are feeling every bump in the road.
  • The U.S. economic expansion was at a record length and the U.S. market was at record highs in mid-February, making both susceptible to a correction.
  • Bear markets are painful and lead to price dislocation in assets as people sell into the negative news and fail to stick to their investment plan.

What we don't know (nor does anyone else!):

  • How long this virus outbreak will last.
  • Whether COVID-19 will be similar to other flus and diminish with warmer weather.
  • How deep the economic impact will be.
  • Whether the oil production increase will persist or whether the Russians and Saudis will reach a deal.

Bottom line:

We are here to support clients in making sound decisions during uncertain and volatile times, which occur every so often. Our Portfolio Managers work closely with our research experts to cut through the noise, analyze the markets, and generate insights to ensure our clients’ portfolios are properly positioned.

When we design portfolios, we take into account each client’s unique risk tolerance and the value of having a diversified portfolio. Balanced and diversified portfolios have benefited from strong bond returns over the past few weeks, which have helped to partly mitigate the stock downturn. If stocks get cheaper and bonds get more expensive, it will make sense for us to shift between the two asset classes within each client’s guidelines.

Our goal is to provide our clients with financial peace of mind. The long-term investment plans centered around each clients’ individual financial goals keeps us grounded during periods of market volatility. At CWB Wealth Management, our portfolios are responding as expected and the defensive stance we have taken over the past year has provided some insulation from the extreme market movements.

If you have further questions on your investment strategy or the state of the market, our team will be happy to guide you towards making sound decisions. Feel free to reach out to us at 780-429-3500 or [email protected].