By: Sean Schmid, Chief Operating Officer – Penn Investment Advisors
Weekly Update – March 23, 2020
The news about the spreading Coronavirus has indeed been scary and unsettling over the last two weeks or so. As a result, the markets have reacted with vigor, with large days swinging in either direction.
We have reached out to many of you, but our thoughts continue to evolve as we discover (and digest) new facts. The first thing we are our advising our clients to do is to concentrate on their health through-out the period. As Ralph Waldo Emerson said, “the first wealth is health.” So please prioritize staying well.
Here are our brief thoughts to the questions that are on all of our minds.
When will the volatility end? The volatility will continue until we have some path forward. In short, as long as there are newly discovered cases and lots of headlines, then you can count on continued volatility responding to the good days and also on the bad days.
Could this get worse? Of course it can get worse. We are preparing for a potential 30% total decline in the broad equity markets. As of this writing, we are about two-thirds of the way there. It can get worse, depending on how long this negative news continues and when we learn of the path forward.
How has the market reacted to past viral outbreaks? Investors have been attuned to updates on the spread of the disease, however, Wall Street’s reaction to such epidemics and fast-moving diseases is often short-lived.
According to Dow Jones Market Data, the S&P 500 posted a gain of 14.59% after the first occurrence of SARS back in 2002-03, based on the end of month performance for the index in April, 2003. About 12 months after that point, the broad-market benchmark was up 20.76% (see attached table):
The severity of the virus, ultimately, will dictate the market’s reaction and just because indices had managed to shrug off the contagion from outbreaks in the past doesn’t mean that will be the case this time.
What about my portfolio? Rest assured that we are doing everything that we can do. We are monitoring the news, talking with health experts and scientists, and focusing on economic indicators and technical trends. Remember that many portfolios were already conservatively positioned coming into this crisis, so many of you were already a little ahead of the game, so to speak. We believe in diversified portfolios, and that has helped portfolio returns. Finally, remember that whatever returns you see on the news does not precisely address your personal portfolio, because you likely have other holdings, such as bonds, money markets, etc.
What else should I know? Remember that most of you have very thoughtful financial plans that are put together by us. Those plans stress tested your portfolio for events just like this. We anticipate that markets will go up and down. That is part of investing, which is why you earn an “equity risk premium.” Always think about your financial plan as that is your road map and your path to success.
What is next? Once we believe that the situation is somewhat stabilized, we have some ideas as to where to deploy cash reserves. But, we are sitting tight for a while until we see a clearer path forward.
As always, thanks for your continued support. We feel privileged to serve you. Please feel free to contact us with any questions.
Penn Investment Advisors, Inc.
Investment advisory services are offered through Penn Investment Advisors, Inc. (PIA), a Registered Investment Advisor. PIA is a wholly-owned subsidiary of Penn Community Bank (Bank). PIA does not offer or provide legal or tax advice. Please consult your attorney and/or tax advisor for such services. The products offered by PIA are not insured by the FDIC, the NCUA or any other agency of the government, are not deposits or other obligations of the Bank or guaranteed by the Bank and involve investment risks, including possible loss of principal amount invested.
The information contained herein was prepared using sources that the Firm believes are reliable, but the Firm does not guarantee its accuracy. The information reflects subjective judgments, assumptions and the Firm’s opinion on the date made and may change without notice. The Firm is not obligated to update this information. Nothing herein should be construed as investment advice or a recommendation to purchase or sell securities. The information is not intended as an offer to provide advisory services in any state or jurisdiction where such offer would not be permitted under applicable registration requirements. All equity investing entails risk of loss.
In preparing this material, Penn Investment Advisors, Inc., has not taken into account the investment objectives, financial situation or particular needs of any individual investor. Many securities transactions are risky and are not suitable for all investors. All securities investments carry risk, including a risk of loss of principal.