US Viewpoints: March 18, 2020
We wanted to take a moment to give you an update on the current market conditions and our thinking.
We expect there to continue to be large daily moves in the stock markets until we see stability in the bond markets.
Bonds are normally boring investments, but in the current environment, there is above average volatility. Once this settles down, and it will, we should see less pronounced moves in stocks.
As we said last week in our note, we would likely trim some investments. There has been selling and some reallocating in your accounts. These are actions we have taken to raise some additional cash.
"Finally, be aware that the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before." Jeremy Grantham, GMO
When will something positive happen?
The markets have been relentless with large swings to both the downside and upside. Right now, we are looking to the bond market for signs of stability before we see things become less volatile in the stock market. This is being addressed by the Federal Reserve and banks in the actions they are taking to smooth out the bond market to make sure they are functioning efficiently.
Investors are next looking to see the government’s response to help those impacted by businesses or their employers closing operations because of the COVID 19. This remains fluid but there is likely going to be action sooner than later to soften the economic blow from millions who will lose their jobs in the next few weeks. A short-term stimulus plan could offer some optimism.
Lastly, we start to get some data on COVID 19 testing and economic impact soon. The markets will bottom before the COVID 19 data improves and economic data reaches an inflection point. China is starting to come back online. FedEx released earnings this week and they said on the call that “estimated China’s manufacturing base is back up to 65%-75% of capacity and growing, with large manufacturers probably 90%-95% back.” Apple and Starbuck’s retail outlets are open again there as well. This is about two months after the peak of the COVID 19 outbreak there.
Our Strategy
We took advantage of an upswing in the markets on Tuesday and sold a few holdings to increase our cash position. At this time, we believe we have enough available cash to protect your investments and have dry powder to invest when the markets turn. We want to assure you that these trades were not part of a computerized trading program but decisions we made that coincide with our communicated bear market investment strategy.
We hope that this is helpful in navigating these tough days. Take care of yourself and your family. Please do not hesitate to reach out. We are working from home like many of you, but it is business as usual for us. You can call us at 913-871-7980 and we look forward to having meetings over Zoom during this time.