March 25, 2020
To Our Friends and Clients,
In the past month we have all been impacted by the COVID-19 pandemic: financially, socially, emotionally and, sadly, physically even unto death. In the financial markets we have witnessed panic selling of almost everything, except Treasury bonds, and market dislocations. Market and economic forecasts have been all over the map.
On February 19th, the US stock market, represented by the S&P 500 Index, closed at an all-time high. From that peak to the recent trough on March 23rd, a period of just over a month, the index declined 34%! (Over the same time period, US Treasury bonds, represented by the S&P U.S. Treasury Bond Index, appreciated by almost 5% as investors sought safety.)
The steepness and suddenness of the decline invoked comparisons to “Black Monday,” October, 22, 1987, the day the Dow Jones Industrial Average fell 23% in a single day, and even the stock market declines of the Great Depression. That’s where the similarities end.
We know that no two financial market crises are identical, and this one is no exception. Prior to the pandemic the US economy was on solid ground, marked by historically low unemployment, and buoyed by low interest rates. Today, interest rates are even lower, and the Federal Reserve and Congress have “primed the pump” with MASSIVE monetary and fiscal policy stimuli. Most importantly, there’s no reason to believe that once the government-mandated shutdown is over Americans will not get back to work and resume normal economic activity.
Financial markets are discounting mechanisms, meaning that they take into account all available information to include potential future outcomes. Therefore, we can expect the financial markets to reprice normalization before it occurs, before it’s reflected in actual economic and corporate earnings data.
For those with capital (money to invest), courage and conviction, this is one of those rare opportunities to invest in great businesses at great prices across the capital structure (equity and debt). We are taking advantage. We are rebalancing and repositioning client accounts for what we believe will be a strong recovery in financial markets. Also, we are taking positions in some securities that have been unjustifiably and incommensurately sold off.
We are at work, and we are working for you. Please contact us if you have any questions or concerns. Be safe and be of good cheer. This, too, shall pass!
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