Coronavirus Market Update

March 19, 2020 – Market Update

Stocks dropped about 6% Wednesday and are now down about 35% from their all-time high level set only one month ago.  The fall has been breathtaking and unprecedented and unsettling, to say the least.  Fear over the extent to which COVID-19 and the actions taken by federal and state governments to combat it’s spread will damage the economy has led to wholesale selling of stocks, many types of bonds, and even gold, traditionally viewed as a safe haven.  It seems apparent that the economy is going into, or is likely already in, a recession.  (The average market decline during recessionary periods happens to be, interestingly, 35%.)

Unfortunately, the hysteria surrounding this pandemic will likely lead to more scary headlines, more selling, and even lower stock prices.  During times like these it is important to try to remain calm, which can admittedly be difficult.  Even those of us who have been in this business a long time and have lived through several market drawdowns and nasty bear markets can grow fearful when it’s happening.  During our investment meeting today, we thought back to the financial crisis, when the global financial system was literally on the brink of collapse and seeing the investment team’s members fear and angst.  Even though the team represented well over 100 years of investment experience, faces looked gray and ashen due to the nonstop negative headlines and the plummeting stock prices and worry for our clients.  It’s easy at those times for even the most experienced professionals to think there is no answer and lose hope. 

But giving up hope is not a strategy.  Eventually the market bottomed, and things got better.  Measures taken by governments around the world allowed the financial system to begin healing, companies did what they do, and the stock market rallied strongly.  Business revenues and earnings started going up, and we had an 11 year economic expansion and stock market boom.  It’s happened numerous times over the last 100 years and will do so again. 

Even in the best of times, stocks are volatile assets.  As the chart below shows, every year since 1980, at some point stocks were in negative territory.  In 30 out of the 40 years though, stocks ended the year with a positive return.  Obviously, the current decline is lower than the -13% shown as of the end of February.  We think the point to keep in mind is that stock market volatility is normal and is simply part of the price investors pay for the higher return stocks provide over time.

COVID-19 will be defeated.  We don’t know how or when, but, if history is any guide, the combination of massive financial resources, and human ingenuity and innovation will solve this problem.  Businesses will re-open and we won’t have to be shut-ins anymore and we will be able to live normal lives again. This is not meant to be flippant, but this too shall pass. 

Meantime, we will help our clients, and our Glenview family, weather this tumultuous period.  These are the times when we add the most value for our clients.  It’s when we can walk side-by-side with them, and each other, to ensure that we make the wisest decisions we can to help all of us come out the other side in the strongest position possible.  Hang in there.  Turn off the news.  Take good care of yourself and each other.  And look forward to a bright future, because it will be. 

To better keep you informed, we posted a letter to our website (www.glenviewtrust.com) last Friday with comments about COVID-19 and the markets.  You can find it, as well as our other perspective pieces and company news, by clicking on the “Glenview News” tab at the top of our homepage.  And please know we are all 100% focused on helping you navigate these difficult times.  Though many of us are working remotely, we are fully functional and only a phone call away.  If we haven’t reached out yet we will shortly.  Please do not hesitate to call any one of us if you need something or just want to talk.   

As always, thank you for your trust and confidence.

The Glenview Trust Company     

    

Coronavirus (COVID-19) Outbreak

Coronavirus (COVID-19) Outbreak

We don’t know how serious and widespread this coronavirus (COVID-19) outbreak will ultimately be, but markets are clearly selling off on expectations of slowing economic growth or outright contraction/recession.  U.S. stocks have dropped almost 20 percent from their all-time highs reached merely three weeks ago.  Some of the most impacted industries have seen companies’ stock prices decline 50 percent or more.  Adding to the plunge is the more than 17 percent decline of oil prices resulting from a price war between Saudi Arabia and Russia on top of the virus-related decline in demand. 

You have heard about curtailed travel, cancelled or postponed events, quarantines, and attempts to disinfect.  As more of these measures are put in place, global economic activity will certainly contract further. 

The fact that equity markets entered the COVID-19 scare at or near all-time highs and at full valuations exacerbated the stock market declines.  Given the high valuations, it is no surprise that a global health scare and the large decline in oil prices would cause extreme stock price swings.  And with the growth of high speed, algorithmic trading, huge price moves based on news headlines can happen almost instantly. 

Over the last 40 years, there have been numerous pandemic scares (Chart #1).   

And while they have occurred at various stages of economic growth and equity valuation levels, the market impact has been more-or-less temporary.  There have also been plenty of days during that time that saw large stock price declines (Chart #2).

Monday March 9th –interestingly, the 11th anniversary of the Great Financial Crisis market bottom– was the eighth worst day (on a percentage basis) since 1987.  Within a year of 13 of the prior 15 worst days, the S&P 500 was up 17 percent or more.  Of course, past performance is no guarantee, but it is reasonable to expect that efforts to contain the spread of COVID-19 will eventually succeed, and that its impact on global economic activity will fade, similar to MERS, SARS, Ebola, and Zika.

Our most important job as investment professionals is to help our clients prepare for these inevitable periods of stock market declines.  For the last 18 months, we have written about the importance of rebalancing portfolios.  The long post-crisis bull market has given us the opportunity to do so.  It is critical to routinely assess whether your portfolios are appropriately balanced among asset classes, based on your specific goals, risk tolerance, and liquidity needs.  

Sudden market drops like those we’ve seen the last few weeks are scary.  It is human nature to be frightened and emotional when so much uncertainty exists.  We feel the pain too.  Yet these are the times when your Glenview investment professionals can add the most value by helping you stick with your plans for achieving your goals and objectives, and successfully weathering these inevitable stock market shocks. 

As always, we appreciate your trust and confidence and value your relationship.  Please call if you have concerns you would like to discuss more thoroughly.
The Glenview Trust Company