“I believe in striving for excellence. I sweat the big and the small stuff. I do not apologize for this.”

Dr. Anthony Fauci

As we are about to enter our third month in dealing with the coronavirus crisis, for those of us who have been around for a few cycles, have quickly come to the realization this is not your “garden variety” type of cycle. This is a brand new event, and it is not like anything that anyone has ever experienced before in the last 100 years. When it comes to markets, when you have had the moves you have had in but 60-65 days…both to the downside, and back to the upside…..This may be a cycle where we just have to “rip up the script”… it is a never before seen event.

The honest truth is no one knows where this is going to end, and because a vaccine could still be some time off, it is highly possible things are going to be impaired still for some time on the economic front. This wasn’t an economic bubble bursting as much as a health crisis which basically forced the powers that be to put the economy into a temporary “coma” in order to protect its citizens.

The question now is not so much as to “when” do we come out of this, as much as “how” do we come out this. There is no doubt there are going to be some changes in how society interacts and how companies do business. There will be new policies and procedures, and questions around whether supply chains will change, etc. … etc. … these are just some of the items we need to consider, and no one knows the answer to any of it yet.

One would have to guess there’s going to be a lot less competition out there, perhaps less need for certain types of real estate, and no doubt a higher investment in technology which creates mobility. Innovation will certainly have a big impact going forward.

Even though I mentioned this is a type of cycle no one’s ever seen before, the only thing we have to guide us is history and how past cycles have played out. We like to use history as a guide, because even though each cycle has a different look and feel, and usually a different catalyst for the downside, the results coming out of them are often similar.

If we were to look at more recent markets, since 1980, there have been 32 clear corrections, or about one every 1.25 years.

Here are all 32 corrections the S&P 500 has seen since '80 and what happened next:

As you can see, the average drawdown was almost 19%, and taking it out 12 months later, the average return on the S & P 500 was over 23%, with only three of the reporting periods (out of 32) still being negative, and two years later an average return of over 36%, with four reporting periods still negative.

Some of those moments were not easy times, the crash of 1987, the 1990-91 recession, the dot-com collapse in 2000-01, the 2008-09 Great recession are some cycles still deeply engrained in my memory. Those were indeed tough cycles. Fear levels and uncertainty were high.

So while, yes, perhaps this is an event no one has ever seen before, there are many reasons to believe that once the medical side of the equation is figured out, and it’s not a question of “if” but “when”, capitalism and markets seem to respond quicker than ever believed at the time.

This too shall pass, and we are sticking to our discipline and process to get everyone through it.

Stay tuned,
Vito & Eric

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