Linda S. Parenti, CFA
Chief Investment Strategist
With all the gyrations in the markets year-to-date, it seems hard to imagine we are only through the first two months of the year! Investors started the year enjoying six new record closing highs from the S&P 500 in January, only to end the month flat. This was followed by seven additional new closing highs during February, with the last one just seven trading days ago! Stocks have turned negative once again and are now down approximately 9% as of mid-day trading today.
I would encourage you to not give up hope yet. As disturbing as the news feels, we have successfully navigated through turbulent market periods in the past. You may remember December 2018. Equities were down 9% that month, only to rise 8% in January. That volatility was certainly unnerving, but stalwart investors were rewarded. The S&P 500 ended up 31.5% in total return for calendar year 2019. When stock prices temporarily get ahead of earnings growth, markets just need a triggering event, i.e. COVID-19, to bring valuations back in line.
Equity investing today takes a long-term perspective and fortitude. Traders may start selling on unexpected negative news, but then their moves become intensified by algorithmic automated trading programs. Corrections are an inevitable part of investing. Unfortunately, they are not predictable. As my colleague, Ryan Johnson, covered in his video yesterday, that does not mean we are not prepared. In order to weather unexpected market volatility, we continually trim profits when prices are high and rebalance our clients’ asset allocations, keeping them aligned with their specific risk tolerance and cash flow needs. This allows us to have the cash and short-term fixed income assets available for distributions without needing to sell stocks in a down market.
Equities may soon appear oversold, but this does not mean prices cannot go lower in the short term. However, volatility works both ways and valuations are fast becoming more attractive. Contrary to the impression you may have from the financial media, by traditional measures we are experiencing a correction within an ongoing bull market. Speculation as to how long and to what degree COVID-19 will impact economic growth will eventually be replaced by facts. Once related delays in economic growth have a chance to recover, we should see a rebound in stock prices.
In the meantime, if your cash needs have changed or if you have any questions regarding your asset allocations, we urge you to call us. Our financial planners and wealth advisors are always glad to hear from their clients, especially if we can be of assistance during unsettling periods such as these.
RISKS AND IMPORTANT CONSIDERATIONS
Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.