Oakland, CA | East Bay; Navigating Stock Markets During Covid-19

Q1 2020 Market Summary:

Markets have been moving fast over the past weeks.

We’ve had many clients reach out to us over the last month and we are here at our desks to talk, or Zoom, if you like. We’re here evaluating the situation, and your accounts, every day. We haven’t proactively reached out to too many folks because many or our clients view their investments as long-term. They assume account values are currently compressed and will eventually recover.

Our retired clients have layers of safer assets built into their portfolios so we can continue to distribute cash to them without having to sell the more volatile assets while values are compressed.

The stock market is nothing more than a reflection of economic progress. In times of uncertainty a debate rages about recovery times and prospects for the future. How long it will take to recover from this challenging time remains to be seen.

We’ve lived through many market corrections in the last couple of decades, the worst of which were the .com bubble burst in the early ‘00’s and the financial crisis of ’08 and ’09. This market drop was the fastest on record but it didn’t go as deep as 08-09. Markets may go lower but we have experienced some level of stabilization over the last days with volatility receding and clear signs of underlying demand for stocks (i.e. future economic progress).

Currently, thoughts are chaotic and emotions are running high. We’ve worked very hard to connect ourselves to the available data (and guidance from our nation’s lead scientists) and to distance ourselves from the commentary (and headlines) on how bad this might get, or on how our lives may change.

The pattern of spread of Covid-19, and its health impacts, has been very stable. In some places the spread has been broader with neutralization harder to attain. Some places have done quite well to limit the spread and “flatten the curve.” The real numbers, while significant, are proving to be quite small compared to the “do nothing” predictions that initially flew about causing many people’s minds to go into a state of overload.

The U.S. economy came into this pandemic in one of its strongest states ever. Millions of jobs are being lost and our government has responded with massive aid, and stimulus, while our Federal Reserve bank has created enormous amounts of liquidity to keep the system moving. We’ve had some clients view this as an opportunity to put more money to work for the long- term thus likely improving their future circumstances.

We recently combed through taxable portfolios harvesting tax losses and adding a bit more balance in equity (stock) exposures.

• –  Domestic small value stocks dropped 39.24% (worst performing asset)
• –  Short government bonds gained 0.43% (best performing asset)
• –  U.S. momentum stocks dropped 15.48% (our best performing basket of stocks)

We also recently added more equity balance to retirement portfolios and will be doing more rebalancing especially in our most diversified portfolios with respect to stocks vs. bonds. While these past weeks have seemed much longer, the stay-at-home has in-fact only been a few weeks and will be lifted in some number of more weeks. More people may start to wear masks when they go out and people and businesses will adjust until we have a vaccine and more people have been tested and are known to be immune.

We don’t know and can’t predict how much economic progress has been lost, but stock markets are the most efficient expectations voting machine ever created and at the moment markets are saying there’s a good argument to be hopeful.

This likely is a good time to keep pushing money into markets through retirement accounts for the long-term, or even switching to a more volatile asset allocation with retirement assets (or college savings) that won’t be used for many years, depending on one’s circumstances.

We’re happy to review your circumstances with you. We hope you and yours are well.

As always, we truly appreciate the confidence you’ve placed in us and are happy to talk if even only just to connect on a human level for a few minutes.

Sincerely,

Erik S. Wolfers, MBA, CFP®