Market Commentary: Stay the Course
Bill Noonan
March 02, 2020

The equity markets have seen a significant plunge in the past two weeks, a result of the unknowns associated with the spread of COVID-19 (coronavirus).  World economies are paralyzed as concerns about the spread of this new virus and its many unanswered questions have led to isolation by country, by company, by world citizens.  While some legitimately ask, “is this crisis overblown?”, the reality is that the economic impact is very REAL.  And that’s what’s being priced into the markets today. 

The truth is nobody knows what the impact will be.  We will know in retrospect but that could be months or even years away.  So, what are investors to do today?

Let’s begin with the knowns.  We know that after major market dislocations the economy and the financial markets will recover.    In every period where uncertainty and scary unknowns enter the psyche of investors, the market ultimately rallies, and the economy expands again.  The most recent example being the financial crisis in 2008-2009.  At the time, this historic 10+ year expansion and bull market would have been hard to predict. 

Investors should heed other important knowns such as their investment objective, time horizon and risk tolerances.  So long as those things have remained the same, the worst thing to do would be to overreact to the current market turmoil.  Studies are rife with examples of the perils of market timing and changing course during these periods.  As Paul Donovan of UBS rightly stated, “It is worth remembering that forecasters nearly always underestimate human resilience, and thus economic recovery from big shocks.  The initial damage is correctly assessed, but the bounce back tends to come earlier and stronger than consensus expects.”   While it is painful in the short term, unless something changes in your life, you will be rewarded by staying the course. 

Finally, we also know that sticking with an investment discipline that has been proven over many market cycles, including major market dislocations, is critical.  We are determined to follow the process that has helped us navigate these periods in the past.  We will make investment decisions based on the output of our research and apply any necessary adjustments with the same conviction and discipline that we always do. 

Additionally, the markets at the beginning of this month were at historic highs and in our view were already overpriced, particularly at the upper end of market capitalizations.   Equity markets gained between 25% and 30% last year and were plus 5% YTD before this crisis hit.  The markets were frothy and looking for a reason to reset expectations.  While COVID-19 is extreme, it did provide the opportunity for market players to adjust expectations to more reasonable levels. 

While we may not have hit the bottom yet (only hindsight confirms), we believe the speed and depth of this correction is likely to be followed by a sharp and speedy rebound.  This is truly a global phenomena and once it passes we will see a massive global recovery effort that will continue the economic expansion that began in 2009.

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