Recent Market Volatility
by Stephen Ahern on Mar 10, 2020
You are undoubtedly aware of the current issues stressing the financial markets:
- COVID-19 pandemic
- OPEC/Russia oil price war
- Unknown election results
Rest assured that, on behalf of our clients, we are following all of the developments closely. However, despite these extraneous pressures on financial assets, our investment premise has remained the same… continue to follow a disciplined asset allocation/rebalance/tax-loss harvesting approach. While client portfolios have fallen a bit, they have not fallen as severely as the broader markets. And despite the recent valuation drops, most portfolios still reflect unrealized gains as a result of the very long bull market we have recently experienced.
Recall that, before the current issues coming to light, the fundamental underpinning of the markets were strong, all resulting in a slightly “overvalued” market as a whole:
- Historically low unemployment
- Historically low interest rates
- Strong jobs growth
- Rising wages
- Strong corporate balance sheets
- Rising corporate earnings, albeit at a slowing pace
- Strong consumer spending (one of the main drivers of GDP growth
How these underpinnings fare after this round of extreme volatility remains to be seen. Surely, there will be a drag on economic growth, especially if quarantines and travel restrictions increase. How effective the current Administration manages this crisis remains to be seen. Last week’s mid-meeting 50 basis point reduction in interest rates had a brief effect, and more stimulus may be coming.
It’s important to remember that, historically, equity markets have had 10% corrections at least once per year. It’s been some time since we’ve seen normal levels of volatility in the stock market, much less healthy corrections. Thus, when you couple higher valuations and a need for an excuse for profit-taking, you’ll often get a correction. We are hopeful that this current disruption will result in minimal human and economic damage and end up as another small blip on the chart of financial history.
Generally speaking, any cash needs that we are aware of have already been raised in our clients portfolios, making the current market volatility less immediately impactful to our clients. Our disciplined asset allocation/rebalance/tax-loss harvesting approach has weathered many storms, and this storm will pass as well.
Please do not hesitate to call us at (978)970-3400, should you have any specific concerns about your portfolio or your financial plans.