Gill Capital Partners March 12, 2020 Market Update
Coronavirus and Market Update
The response to the coronavirus continues to unfold in unprecedented ways with communities adapting to new social distancing recommendations, school closures, and travel restrictions. Global capital markets have responded in spectacular fashion, rapidly re-pricing assets across the spectrum to account for the yet unknown impacts of the unparalleled global response to this health crisis, culminating with today’s sharp drop in equities and most other assets. U.S. equity markets, as measured by the S&P 500 Index, are now down 22% for the year and down roughly 27% from the all-time high reached on February 19th. The index is now at the same level that it was in early January of 2019. This is truly an extraordinary sequence of events.
We recognize that extreme market volatility creates anxiety and fear. Please know that we are always here to take any questions you have about the current situation, the markets, or anything else you would like to discuss. We’re happy to have a conversation about your pets, your favorite binge-worthy Netflix shows, or your favorite cocktail to calm the nerves. While we cannot tell you when this correction will be over, or where the bottom is, we are confident that it will not last forever. We are also cognizant of the fact that this might get worse before it gets better. The news cycle is sure to provide a constant stream of headlines related to cancelled events, spread of the virus, and travel restrictions in the coming days. As news of additional cancellations and business interruption comes out, so too do the odds of recession. While probability of a recession was nearly zero just a few short weeks ago, the sheer level of economic disruption occurring today has made this a very near-term possibility. We understand that the thought of a recession creates anxiety, but recessionary downturns are a normal part of the business and investment cycle. This is illustrated by the chart below, courtesy of Standard & Poor’s.
Please remember that your portfolio is thoughtfully crafted, diversified, and designed to meet your long-term goals. It has been constructed with your time-horizon and risk-tolerance in mind and includes assets such as bonds, which act as an anchor windward in times like this. We are always happy to review your allocation and answer any questions you may have.
While it is a fool’s errand to guess when this correction will be over, we are seeing technical signs that tell us we may be getting close. We believe the market is looking for clarity in two key areas before confidence can be restored:
Coronavirus –How quickly will it spread? What does the death rate look like in the U.S.? How long until we have a vaccine? Unfortunately, some of these questions will take some time to answer. However, we are gaining more clarity every day.
Fiscal Stimulus – The market is expecting a significant fiscal stimulus program. The plan is on its way; the details and scope of the plan will be key to calming the markets. The program needs to be substantial in order to provide confidence to investors.
What should investors be doing now?
Selling during down markets turns unrealized losses into realized losses. Trying to time the markets is extremely difficult and often produces worse outcomes than remaining invested. However, there are some actions that investors can be taking now:
Think about making IRA or self-employed retirement account contributions if this is part of your planning strategy. These are long term investments.
Consider contributing to your 529 accounts if this is part of your investment strategy.
Convert to a Roth IRA if this makes sense for you. While this is a taxable event, you pay tax on the amount converted at the time of conversion, which is arguably less than it was a few weeks ago.
Talk to us about rebalancing. We are currently reviewing portfolios to determine whether a rebalance is warranted. Rebalancing is just as important in down markets as in up markets.
If markets are keeping you up at night, please call us, and we can discuss whether there are any changes we can make to your asset allocation that might make sense.
Gill Capital Partners Business Continuity & Response to Coronavirus
In the midst of all of this uncertainty, we’d like to assure you that we will be available in the coming days and weeks. We have long had a business continuity plan in place and our staff is equipped and prepared to work from home. We employ a secure VPN system and do not expect any business disruptions. We have professional IT support and a robust plan that we review and test regularly. As long as there is an internet connection available, it is business as usual for us - we are able to perform all critical functions including answering phones, accessing client accounts, entering trades, and moving money. If you have an in-office meeting scheduled in the next few days, we will reach out to you to make the determination of whether to conduct the meeting in the office or via phone or video conferencing. Please do not hesitate to reach out to any of us with any questions or concerns.
As always, please let us know if you have any question or concerns, or if we can provide assistance with any other financial planning matters including education, taxes, insurance or estate needs.