This week began with news of a price war for oil between Saudi Arabia and Russia that sent crude tumbling by the most since 1991. Fallout for stocks was swift with markets opening limit down and triggering a circuit breaker for the first time since 1997. Investors sought shelter in government bonds, sending Treasury yields to all-time lows. Indeed, for the first time ever, no US Treasury, including the 30-year bond, yielded over 1%.
Stock markets have continued their downward trajectory with most major worldwide stock indices trading in bear market territory (a decline of 20% or more from recent highs) versus experiencing a correction (a drop of 10%). Investors continue to struggle to quantify the impact of the Coronavirus on global supply chains and consumer behavior, and now have the added uncertainty brought about by falling oil prices. Additionally, attempts to control the spread of the virus through limiting social contact have added an additional element of anxiety.
Governments and central banks have begun to institute policies, both monetary and fiscal, that they hope will begin to calm markets so that they can function in a more orderly fashion. Lower interest rates and gasoline prices should benefit the consumer, as would a well-coordinated series of health measures to contain the virus.
It is entirely possible that the stock market has overshot on the downside and priced in too severe of a negative scenario. For comparison, banks today are in far better shape to weather shocks than they were in 2008 and are less than half as leveraged as they were back then. Markets today show no signs of the credit crisis that created the Great Recession and the basic plumbing that keeps financial markets moving shows no signs of stress. In fact, we do not see any of the excesses that can often build prior to major recessions, whether it be in lending, real estate values or other asset prices. Given this, investors would be better served taking the long-term view. The chart below provides a longer-term perspective and shows that investors have been rewarded for their patience through both corrections and bear markets.
We continue to closely monitor the situation and look for opportunities that arise in times of market downturns. Rebalancing portfolios to take advantage of falling prices, retaining more cash for clients in distribution mode and ensuring that our clients’ financial plans are up to date are ways that we can help during these challenging times. The depth and breadth of this decline is still unknown, so the best defense is to rely on fundamentals, versus emotion, to steer our course.
No one is happy when market volatility increases, but it is an inevitable side effect of being invested in the market. The key is to maintain a balanced approach to investing, keeping in mind the long-term plan you’ve carefully created with your advisor and not letting the short-term noise throw you off your game.
This material is provided for general information purposes only. Canandaigua National Trust Company of Florida is an affiliate of Canandaigua National Bank & Trust. Investments are not FDIC insured, not bank deposits, not obligations of, or guaranteed by, Canandaigua National Bank & Trust or any of its affiliates, including Canandaigua National Trust Company of Florida. Investments are subject to investment risks, including possible loss of principal amount invested. Past performance is not indicative of future investment results. Before making any investment decision, please contact your legal, tax or financial advisor. Investments and services may be offered through affiliate companies.