The year began with good news on the US-China trade front, pushing stocks to record highs into February. Today however, the world is singularly focused on the global COVID-19 pandemic. Nations have been placed on lock down, businesses closed, and residents home-confined. Doctors and public health officials are feverishly working to limit the pandemic’s human toll. Government and business leaders are strategizing to limit the economic fallout. The Federal government and Federal Reserve Bank have acted decisively and aggressively to help stem anticipated economic, business, and household losses. Measures include the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act, the largest emergency spending bill in the nation’s history. In addition, the Federal Reserve Bank has slashed short-term interest rates to near-zero, implemented an unlimited debt purchasing program, and extended financing facilities to maintain sufficient liquidity in the economy.
The longest recorded bull market in history came to an end in February following an 11-year expansion. In mid-February, stocks turned down as the coronavirus outbreak spread into a global pandemic. US stocks slid 34% from peak to bottom in the space of just 23 trading days, resulting in the first bear market since the 2008 Financial Crisis. As of this writing, stocks have partially recovered from their trough but continue to trade with high volatility. Unprecedented fiscal and monetary stimulus measures have helped to ease some market fears. In the first quarter, US stocks ended down 19.6% and international developed market stocks declined 22.7%.
Bond markets performed well into early March, despite the stock debacle. This rise proved short-lasting, however, as bond prices eventually fell in response to escalating investor liquidity demands. The Federal Reserve Bank quickly initiated measures to buy debt securities without limit, including US Treasuries, mortgage-backed securities, and for the first time ever, highly-rated corporate and short-term municipal bonds. These measures provided a necessary catalyst to help bolster bond values. Overall, taxable US bonds ended the quarter up 3.1%. Tax-free municipal bonds did not quite make it out of the red by quarter end, reporting a 0.6% loss for the period.
Markets hate uncertainty and thrive on clarity. Until we have a better understanding of the duration and severity of the coronavirus contagion, it’s impossible to predict the pandemic’s impact on economies, markets, businesses, and individuals. Opinions abound, ranging from doomsday scenarios to a great buying opportunity. Ultimately, the pandemic will wane or be curtailed by medical treatment or vaccine discoveries. The landscape has changed, but our advice remains the same. We encourage you to maintain adequate cash reserves to see you through the remainder of the year. Residual savings should remain invested in a well-diversified portfolio that reflects your financial goals, investment time frame, and risk tolerance. Remember, panic is not an investment strategy. It’s best to avoid the temptation to time a bottom or a recovery. Waterfall market declines have historically experienced selling climaxes followed by sharp rallies. Keep in mind that investing is a process over time, not a moment in time.