3.27.2020 Market Update

3.27.2020 Market Update

Market Insights from Betsy Pierson, CFA, Chief Investment Officer and Tracey Garst, Sr. Portfolio Manager:

What a difference a week makes. Just last week we were feeling the pain of a stock market sell-off which no one had seen or experienced since the Great Depression. Fast forward to this week and we have seen the largest 3-day increase in the stock market since 1931! This is a perfect illustration as to why it is impossible to time the market. History has shown us that some of the best days in the stock market have occurred within bear markets. On March 18th we saw the VIX volatility index hit 85, which is a level only surpassed in October 2008 during the Global Financial Crisis when the VIX hit 89. This volatility index remains above 60, demonstrating continued uncertainty and volatility in the markets.

In a fairly quick response to the domestic economic situation, the Federal Reserve provided liquidity needed for the markets, resulting in credit markets beginning to recover. In addition, Congress passed one of the most aggressive fiscal stimulus packages in history totaling more than $2 trillion. Similar action occurred in 2008 when Congress passed TARP (Troubled Asset Relief Program), an $850 billion stimulus package, to prevent the possible collapse of the global financial systems. Did that mark the bottom of the bear market in 2008? Unfortunately, the answer is no. Even though the market rallied after the passage of TARP, it actually continued to sell-off into November and did not bottom until March 9, 2009.

Today we are faced with a similar situation. The Coronavirus Stimulus package will certainly provide financial support to the unemployed, as well as small businesses who have basically lost their livelihood with the government-induced economic shutdown. Since Monday’s intraday low in the S&P 500 index, stocks rallied by nearly 20% over a 3-day period ending Thursday. Does this mark the bottom of the current bear market? We have our doubts. Throughout history, finding the bottom within a bear market is a process and is usually not done over a couple days. In both 1987 and 2008, it was a process to find the bottom before beginning the next bull market. We believe this will also happen in this bear market.

We are certainly happy to see the stock market post a strong rally after weeks of selling pressure, however we remain cautious and would expect some retracement of the recent rally. The uncertainty associated with the COVID-19 pandemic regarding the ability to contain the virus and flatten the curve has not dissipated. We are concerned about the duration of business closings, unemployment and the ability to recover from this experience. We continue to be cautious regarding the markets and believe there is high probability that the most recent market lows will be tested, especially with weak economic numbers and first quarter earnings reports. We continue to maintain our equity positions in our portfolios because as we mentioned before, many of the best days in the market happen in bear markets. As we closely monitor the markets, we do think there will be a time to leg back in and increase our equity positions.

Thank you for your continued trust in us. Stay safe and please do not hesitate to contact us with any questions or concerns.

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