IMPORTANT CORONAVIRUS & MARKET UPDATE
This has been a challenging week in the financial markets with much of it attributable to concerns over the COVID-19 Coronavirus outbreak and its potential social and economic fallout. Over the past 20 years, we’ve experienced multiple disease epidemics and global health scares. The one we are dealing with today has now reached pandemic levels according to The World Health Organization, with COVID-19 cases in 112 countries and regions. As a result, we’ve seen global stock markets decline sharply over the past few weeks with fixed income and cash investments generally holding up well as investors process information and try to assess economic implications.
Initially, the primary economic concern was a manufacturing slowdown in China given its relevance in the global economy. With the virus spreading beyond China, and quarantines and other restrictions being considered and implemented globally, additional economic concerns, specifically around consumer spending and its economic impact, have been raised. And as we know, in the US, consumer spending is a big driver of the economy.
Here is what we know:
- Equity markets in the US have declined more than 20% from recent highs, meeting the definition of a ‘Bear Market’, the third such market of the last 20 years.
- The Fixed Income market, as represented by the Barclay’s US Aggregate, is up 3.9% through yesterday’s close.
- Given the slowdown in manufacturing and the precautions being taken to limit the spread of the virus, we are likely to see a slowdown in global economic growth which could lead to a recession. This is not a prediction, simply an acknowledgement, given we don’t know the duration of the slowdown.
Actions being taken in the US:
- Restrictions have been placed on travel, sporting events and other large gatherings. School districts and colleges have made plans and taken actions to suspend in-person classes. Nursing homes have restricted visitations. All of these actions are preventative measures to slow the spread of the Coronavirus.
- The Federal Reserve last week cut interest rates 50 basis points (1/2 percent) lowering the cost of borrowing to help cushion the economic impact. And yesterday the Fed took further action, providing financial markets with additional liquidity.
- Also last week, Congress approved an $8.5 billion spending package to fund the response to the Coronavirus.
- The Trump Administration is considering other fiscal measures to combat the Coronavirus and lessen the resulting economic impact to both employers and employees.
- We would first like to acknowledge your concerns. We too are working to understand the medical and economic implications as mothers, fathers, caregivers, employees and an employer, as well as investors.
- Focus on what you can control; your personal health and well-being and your response to the volatility in financial markets.
- We have encouraged our clients to review their budget and assess their cash needs. If there has been a change or in the event of an unexpected change, we’ve asked them to reach out to us to discuss so we can help them plan accordingly.
- We have reassured our clients that their investment portfolio was crafted to meet their specific situation and needs. If they are a retiree we have built in cash allocations and other short term investments to meet those needs. If they are just now entering retirement or close to retirement, we have designed their portfolio accordingly so those first years of cash needs will be met. If retirement isn’t yet on the horizon maybe they are thinking about adding money to their investment portfolio. Looking back from the future, today could prove an especially opportune time to invest new money in growth oriented investments. So be sure to focus on your specific situation and how your portfolio is crafted. And live and invest in your comfort zone. What others are doing is irrelevant.
- Madison will continue managing client portfolios to their appropriate asset allocation targets as the markets move and look for opportunities to tax loss harvest as appropriate.
- If you have any debt, especially a mortgage loan, consider refinancing it at today’s historically low interest rates. If you need a referral to a quality lender, please let us know. We’ll be happy to introduce you.
- Maintain confidence knowing that neither market booms nor busts last forever. This too shall pass.
If you are interested in discussing how Madison might help you navigate through these challenging times, please let us know. We are here to help and available to speak with you by phone or to meet in person.
The Madison Wealth Management Team