Market Update

Mar 14, 2020 | Jeffrey Wellwood


Well, it has been quite the week! And what a finale!!!!

I don’t know about you, but I’m sick and tired of all this coronavirus news. I would say that I’m looking forward to our March Break vacation, but that has been cancelled and so has our children’s school for 2 weeks after March Break. However, I applaud Health Officials for acting quickly and decisively to prevent the spread. The sooner we stop this virus the sooner we can move on. While I’m reluctant to send too many emails in a world of information overload, it has occurred to me that there is a lot of misinformation.

Coronavirus – Just The Facts:

In an effort to separate facts from opinion, the following links have great facts that attempt to put the coronavirus in perspective. Here are a couple of good reads:

A Few Comments on “The Markets”

Market declines typically end in climactic fashion, with the worst day at the end - and that could have been yesterday - with the wholesale selling of even the defensive areas of the market. Even though some previous trend lines and support levels have been broken, this is all part of the process. In the end, this is still a correction within the long-term secular bull market (hard and fast like 1987) that will likely lead to a big bounce and then a possible test of the lows, leading to an eventual uptrend again but could take a few months before the upside gets going again (also like 1987).

The market looks forward and will be moving to the upside well before the trend of the virus infection is heading lower. We’re getting to the point where the low point in the market that we are seeing now could be the lowest that we will see. The best stock groups for putting money to work now are those that have held up the best in this decline especially tech, industrials, and healthcare.

Historic Parallels

Putting this sell off into perspective, it has proven time and time again that the markets rebound over time. Here are a few past “crises” that, to me, were far more serious than one we’re encountering today:

While no two crises are exactly the same, it’s important to take one’s lead from history to gain some colour on how things may play out from here:

WWII – In the case of WWII, there were legitimate fears that the world would fall to Nazi Germany and life would be forever changed. If we specifically look at May of 1940 when France had collapsed in a matter of days and the British army looked set to fall prior to its evacuation at Dunkirk – we would note that the stock market, while down ~25% in the prior 6-months leading up to the fall of Continental Europe, would return ~12% per annum over the next 5-years (assumes 60/40 mix of stocks and bonds – would have been higher if just stocks).

9/11 – the stock market fell ~10% in the immediate aftermath of 9/11. At the time and probably for the next year or so, people lived in constant fear that another major terrorist attack was coming. Global travel plummeted and we were also hit by various corporate scandals including Enron that further rattled investors. After the initial drop, markets rallied; however, things did get worse and over the next year markets would fall a further ~20%. A 5-year holding period return (even with the interim 20% decline) would have been ~5% per annum (assumes 60/40 stock/bond mix).

Global Financial Crisis – while folks did not fear for their lives, the Global Financial Crisis brought about fears that the global economy would collapse. From peak to trough, global equity markets fell about 55%, which is about twice the decline we have seen over the past month. We would note again that a 60/40 mix of stocks and bonds would have been up ~50% over a 5-year period from the levels prior to the crisis (in other words, one who bought prior to the 55% decline and held through the crisis).

We would note one final point that there have been 8 different declines of 20% or more since 1980.

Our Thoughts

We remain of the view that we will get through this and as long as you own the right businesses that are weather-proofed to withstand the interruption, you will be just fine. Portfolios have taken a big hit, and investors have not differentiated between businesses that have significant risks and those that have no meaningful exposure to what is happening. In fact, even some businesses that would stand to benefit from the crisis are down sharply, indicating that investors are not acting in a rational fashion.

And while the natural inclination is to take the half glass empty view in a time like this, we would note some developing positives such as the near arrest of new cases in Korea and China and some indications that the fatality rate is dropping sharply.

This is not to say that we do not have concerns, but our worries are less about the market, which we are confident will recover, and more about the health and welfare of our families and those of our clients. Amid this volatility, it’s important to stay diversified, stay invested, and tune out the noise.

The Office

One final point – our offices remain open and are conducting regular business. We would like to emphasize that that we can continue to function in a near regular manner, even if we cannot be in the office as all of our systems are designed to operate offsite. Thus, if there is any interruption, we will be able to deal with all issues that may come up. I am available to chat with you by telephone or video conference at your convenience.

Best Regards,