First Quarter 2020 Commentary

This is a challenging time for so many reasons. There is the concern of potentially contracting the virus. There is also the discomfort of seeing our investment accounts go down, experiencing uncertainty with our jobs or with your children’s jobs. We knew at some point there would be another downturn. We just didn’t know when it would happen or how bad it would be. Fortunately, we did our best to plan for this. Your financial plan is stress tested and takes into account years like we are having. Many of you have chosen to keep 10 years’ worth of withdrawals protected in cash and bonds. This allows you to continue funding your lifestyle without needing to sell stocks while they are down. While this is unprecedented, the 2008 financial crisis was unprecedented as well. As bad as that was, it took approximately 4 years for stocks to recover. Now, we can look back with ease and see how we made it out of that recession but in the moment, it wasn’t so clear. This is no different. We don’t know what will cause things to turn around, but they will. In the meantime, we should focus on what we can control. We can follow the guidance for social distancing, we can stay informed and we can remain diversified and disciplined to your investment strategy.

Market Returns

After ending 2019 with U.S. stocks at all-time highs, the 1st quarter of 2020 has seen a sharp reversal. As the coronavirus spread across the globe, the U.S. stock market dropped over 20% entering what is known as a bear market. While bear markets aren’t rare, this one occurred in less than a month which is the fastest on record.

At one point, US stocks were down -34% but finished the quarter with a return of -20.90%. International Developed and Emerging Market stocks were slightly worse, losing -24.00% and -24.40% respectively. Global Real Estate was the worst performer losing -29.02%. Interest rates decreased for the quarter. This had a positive impact on bond performance with the US Aggregate Bond Index earning 3.15% and the Global Aggregate Bond Index earning 1.45%. These gains were concentrated in government bonds as investors flocked to safety. With cash and government bonds in high demand, even high-quality corporate bonds had a slightly negative performance for the quarter.

U.S. GDP grew at an annualized rate of 2.1% in the 4th quarter of 2019. It is too soon to know the 1st quarter GDP numbers, but estimates are for a significant decline.
Inflation increased by 2.3% for the 12 months ending February.
The unemployment rate increased from 3.5% to 4.4% at the end of March but that doesn’t completely include the last two weeks of unemployment claims of 3.3 million and 6.6 million.

Global Trade

Many of the trade issues that plagued the last few years were finally resolved early in the quarter. President Trump signed the “Phase One” trade deal with China as well as the United States-Mexico-Canada agreement (USMCA). After starting the process in 2016, the United Kingdom officially left the European Union this quarter. As these issues were being resolved, the coronavirus was spreading throughout China and the rest of the world. Certain industries involved with tourism were hit hard early on but now the effects are spreading to other parts of the economy. With many companies dependent on sales and supplies from around the world, business activity and sales are down significantly.

U.S. Monetary Policy

The Federal Reserve began implementing many of their strategies from the 2008 financial crisis to support the economy from the negative effects of the coronavirus. They reduced interest rates to 0-0.25% and restarted an “unlimited” amount of quantitative easing (purchasing government, mortgage backed and corporate bonds). These measures along with investor demand caused the 10-year treasury bond to decrease from 1.92% to 0.70% during the quarter.

Coronavirus

The coronavirus has changed lives for everyone across the globe. Over 2.8 billion people are under some form of stay at home orders. Governments had to choose between public health and economic stability. The social distancing measures implemented should slow the spread of the virus but have a negative impact on the economy. No one knows how long this is going to last or how deep the economic downturn will be. But we do know that governments and corporations around the world are doing everything they can to combat the negative effects of the virus. As mentioned above, the Federal Reserve enacted many measures to support the economy. The US just passed the CARES Act providing an unprecedented $2 trillion stimulus package including outright payments to qualifying citizens, expanded unemployment coverage as well as loans to small businesses and large corporations. Currently, there are dozens of organizations racing to produce a vaccine as well as conducting trials to repurpose existing drugs to treat the virus. While a vaccine isn’t expected to be available for 12-18 months, increased testing and social distancing measures can have positive results. China and South Korea were able to mitigate their outbreaks through effective testing, isolation and quarantine measures.

Conclusion

I understand this is a difficult time for us all. We can view this as a time of stress and challenge, but we should also remember that we are witnessing the greatest display of unity our country has seen in recent history! That’s certainly something to be thankful for. I have listed some resources below to have groceries or food delivered to your home.

Grocery Delivery Services:

Publix Grocery Delivery https://delivery.publix.com/

Harris Teeter Grocery Delivery https://www.harristeeter.com/order-online/groceries

Wal-Mart Grocery Delivery https://grocery.walmart.com/

Amazon Prime Now Grocery Delivery https://primenow.amazon.com/

Instacart https://www.instacart.com/

Food Delivery Services:

Uber Eats https://www.ubereats.com/

DoorDash https://www.doordash.com/

GrubHub https://www.grubhub.com/

Postmates https://postmates.com/

Stay well!