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Are We Concerned Yet?

We are getting a few questions from clients on the nature of the most recent stock market sell-off. We thought it would be a good opportunity to address these questions in our blog, so that all clients can hear our response.

Let’s start with the surprise factor. Was this week’s dramatic two-day pullback unanticipated? Not in the least. Analysts and commentators have been concerned about investor complacency for a long time. Markets have been steadily rallying over the last year, stoked by reassurances by the Federal Reserve and the reduction in trade war fears. The markets recently surged to all-time highs. From that perch, a pullback is entirely expected and normal.

A couple of statistics could be helpful (courtesy of Ned Davis Research):

However, it could be argued that this pullback feels different. The suddenness and pace have surprised some people. We would attribute this reaction to the fusion between finances and health.

We cannot predict the impact (if any) of the Coronavirus on our clients lives and we certainly hope that everyone remains healthy in the coming months. However, our Portfolio Management Committee can (and is) tracking the global economic effect of the disease.

Portfolio Manager, Derek Amey, wrote a detailed blog on February 5, 2020 discussing the implications of global supply chain disruptions and quarantines on certain sectors of the economy. If the Coronavirus acts like previous epidemics, such as SARS, MERS and Ebola, the life of the market pullback will be transitory, and the economy and the markets should rebound after a relatively short period of time. This is our current thinking, which means we believe our portfolios are well positioned to ride out this turbulence.

Our level of concern will rise, however, if the Coronavirus lingers and starts changing consumer and business behavior beyond a temporary basis. This could happen if the disruptions result in a more permanent closure of a sufficient number of businesses and/or a meaningful loss of jobs.

So, the answer to our clients’ question is – no, we are not concerned yet. However, we are very mindful that – like any period in history – sentiment, circumstances and markets are fluid and must be watched carefully.

 

Betsey A. Purinton, CFP® is Managing Partner and Chief Investment Officer at StrategicPoint Investment Advisors in Providence and East Greenwich. You can e-mail her at bpurinton@strategicpoint.com.

The information contained in this post is not intended as investment, tax or legal advice. StrategicPoint Investment Advisors assumes no responsibility for any action or inaction resulting from the contents herein. Betsey’s opinions and comments expressed on this site are her own and may not accurately reflect those of the firm. Third party content does not reflect the view of the firm and is not reviewed for completeness or accuracy. It is provided for ease of reference.