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A Letter to Our Clients

Dear Valued Clients,

Since our recent update, the stock market has shown continued volatility due to fear of the spreading Covid 19 (Coronavirus) with today being the largest sell-offs. The market is reacting to the potential impacts on the U.S. and world economies. The spread of the virus and market reactions are worse than most expected just two weeks ago. We do not know the extent this virus will spread nor the ultimate economic impact. Remember, the stock market doesn’t like uncertainty.

As of today, the S&P 500 index is down 15.3% for the year after increasing 31% last year. For perspective, over the past 10 years, the S&P 500 is up 141% or about 9% a year. The stock market has always, and will continue to, have periods of volatility. We are in the middle of one right now. Over the long run, we believe that investing in stocks will provide long-term gains in excess of other investment choices. We also believe that the stock market downturn and any economic impact will be relatively short lived and we will return to a period of economic growth and increasing stock prices.

Understanding that the question on everyone’s mind is, “What should I do right now?” the answer depends on your personal financial situation. In most cases, the best path forward is to maintain your long-term investment plan. Yet, if you are feeling more than nervous about the stock market or alternatively thinking this is an opportunity to deploy more money into stocks, we can discuss the risks and opportunities of the current market to identify the best course of action.

The Benefits of a Balanced Portfolio

Your portfolio contains both stocks and bonds. Balancing stocks, which have been negatively affected, are bonds that have improved with lower interest rates. The mix of stocks and bonds in your portfolio helps dampen the volatility in times like this. As well, those equities with higher dividends will also help the volatility in your account.

The U.S. Economy

Fundamentally, we have no doubt that the economy drives company results and stock prices. A strong economy provides jobs and business opportunities, which result in higher company earnings and higher stock prices. Going into the Covid 19 crisis, we had a relatively strong U.S. economy. Last Friday, the monthly jobs report (which was lost in the noise of other events) showed nonfarm payroll increased by 273,000 jobs with unemployment at 3.5%, continuing a string of historically good results. The employment numbers will likely get worse over the next few months as businesses are impacted by the virus.

The drop-in travel and entertainment spending may drive the U.S. into recession. For those of you who are long-time readers of our quarterly letters, we have had some concern about a U.S. recession for the past couple of years. We have had the longest economic expansion in the history of our country: 127 months. It may continue, but wouldn’t surprise us if we dipped into a recession. If we do go into recession because of the impacts of Covid 19, we believe that it will be short-lived, what economists are calling a “V-shaped” recession. Here is a good article from Harvard Business Review about what the Coronavirus could mean for the Global Economy.

The Spread of Covid 19

We still don’t know how bad this will be and how long it will last. While about half the people who have contracted the virus have recovered, it’s difficult to know how many more people around the world are infected but have not been tested. In a health emergency such as this, we send our best wishes to the families who have lost loved ones and may still be suffering from the symptoms of Covid 19. Johns Hopkins has a great website following the numbers of reported cases and recoveries.

We continue to monitor the situation closely. Please contact us if you have any concerns. We want you to sleep well at night knowing that your portfolio is set with the right balance of long-term growth and limited risk.

As always, our best to you and your families.