The past few weeks we have been sending you third-party commentary when we felt it offered helpful perspective. Now that we have a more pointed objective, we want to share our thinking process, our analytic findings thus far, and help you with the natural concerns that falling markets and uncertainty in general can incite.
We’re dedicated to constant vigilance and can assure you that whatever challenges present themselves in the next few weeks, we will assess them all within the context of YOU…what makes sense, what is a logical opportunity, where can pro-activity make a difference, etc. We will help you understand how you can capitalize on the opportunities this environment presents.
The Big Picture
While the data sets change daily, I think we all understand the basics: (1) “flattening the curve” of disease incidence and prevalence; (2) the discernible results of social distancing and its costs; (3) how all of this affects the markets. Though we don’t believe in crystal balls, we do trust our demonstrable track record, and the realities it has taught us over the years. So, we thought it was time to share what we believe at this moment:
…We expect that the fullest impact of responsible social distancing will likely not show up in any trustworthy way before April, and perhaps beyond. But it will happen, and it will make a difference.
…We expect that the unprecedented coalition of the global community’s resources — and human ingenuity — will turn the tide.
…We expect that the economic impact of this virus should be considered SEPARATELY from the market impact. These two components will move separately, and at different times.
…We expect the economy will decline in Q2, with GDP falling between 10-20%…slipping us into recession. Many of our clients see this as obvious, but not everyone understands things in quite the same way. At Legacy, we believe this is a foregone conclusion, and should be expected. Ignore the news media and its fear-mongering headlines.
Turning the Tide
While we certainly can’t say when, we believe the markets will turn BEFORE we receive any truly substantive good news – whether that’s in days, weeks or months. And it’s nothing new, historically. In the past we have seen that the very moment we start to feel good about putting money to work, the markets have already moved significantly higher. We believe volatility will continue for the remainder of the year, of course, but significant opportunity exists right now. Remember, markets are “bipolar” and overreact on both the ups and downs. Obviously, we’re in the midst of a down — but stay tuned.
We believe the markets need three things to settle down, find their footing, and change direction — (1) data dissemination underscoring the slowing of disease which as stated above we believe will arrive within weeks; (2) government support to sustain small business and keep “average” Americans afloat which is coming within days, maybe moments, and will be aimed at minimizing the depths of a recession; (3) medical interventions not yet possible, but clearly on the way. If any of these three things occurs faster than we expect, the markets could respond with terrific energy and enthusiasm.
Harvest losses. This means selling holdings in non-retirement accounts with losses and moving them into similar assets. Do NOT leave the funds in cash unless you and your advisor conclude together that this is a prudent strategy.
Volatility likely to persist. Don’t be overly opportunistic if the markets react with a big increase once the government package is finalized. It is likely downside volatility will return.
Consider “layering”. If you have excess cash reserves or fixed income allocations at the high end of your allocation range, consider layering those funds into equities. We define “layering” as a cautious buying strategy for equities in the coming weeks and months.
Never hesitate to call us. We’re here to talk about any issues or concerns, anything we can do to mitigate the turmoil and keep you safe and comfortable. It’s what we do — and it’s all we do — and that’s just the way we want it. Thanks for your continued confidence.