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Clarity Capital Management - Weekly Notables & Quarterly Market Commentary - April 16th 2020

“The most important quality for an investor is temperament, not intellect.”

-Warren Buffett


 

February was 29 days, March was 72 days, and April is officially 453 days.  This is how the year has felt so far!  After so many days of sheltering in place, the day's all start to feel the same.  I think Tom Hanks summarized those feelings pretty well on this past weekend's Saturday Night Live From Home: There's no such thing as Saturday's anymore.  It's just...every day is "Today"

We truly are experiencing unprecedented times, thanks to Coronavirus.  To make any correlation to what we're all experiencing today, we really have to go back to 1918 with the Spanish flu, as we've not had to take actions with a virus outbreak quite like today. However, we clearly have a much different economy than in 1918, and the impact that we're seeing not only in the US, but globally, is starting to become painfully evident.  As of today, the past week's jobless claims surpassed 5 million, bringing the crisis total to 22 million, as more businesses have had to close, furlough, or lay-off employees.  We can hope that as the worst of the crisis passes, and the economy starts to re-open, that many of these people can be re-hired.  Time will tell.  Fortunately, there do appear to be bright spots, with daily new cases and daily new hospitalizations appearing to be leveling off, and more discussions around how we begin to get people back to work.  This won't be something that happens over night, but it is encouraging to see some bright spots emerging.  Additionally, it appears we're seeing coordinated efforts from around the globe and from different companies all working towards the development of a vaccine or antibodies to help fight off this virus.  While this will take time due to the process of vaccine development, to see so many potential vaccines being developed is positive, especially as we head into the fall and winter later this year.

Additionally, we're seeing massive fiscal stimulus from Congress as part of the CARES act, that is finally starting to trickle through. Many folks are starting to see stimulus checks hit their bank accounts this week, and the Small Business Administration's various loans are finally being administered and distributed. The Fed has continued to reiterate their support for providing market liquidity and acting as a backstop for bond markets by continued purchases of Treasury, Municipal, Investment and High-Yield Corporate Bonds. These are unprecedented programs, and some of the quickest emergency actions we've ever seen coordinated by the Federal Reserve and Congress.

After a very tumultuous middle of the quarter, stocks have made a fairly stunning turnaround to start the second quarter.  After the S&P 500 hit a low of 2192 on March 23rd, which took the S&P back to levels prior to the 2016 elections, the S&P has regained nearly 50% of its losses over the course of a few weeks, having closed at 2799 today, or about 28% above the lows on the year.  Pretty astounding!


Overall, the first quarter of 2020 was marked by the fastest 30% decline the broader markets have ever seen in history, taking only 22 days for the S&P 500 to fall more than 30% from its record high on February 19th.  Furthermore, volatility ruled as well, with the CBOE Volatility Index, or VIX, hitting its highest level since the financial crisis. The VIX is a commonly viewed index to gauge the overall level of volatility in the markets.  The below chart shows a historical chart of the VIX going back to the early 2000's.  You can see the sudden spike associated with the outbreak of the Coronavirus this year, and how the VIX spike has compared to other historical market events in the past.  The positive is, a declining VIX reflects a declining level of market volatility and historically, an eventual market recovery.


This quick rebound has been a good example of why exiting the market, or timing the market, is a poorly designed plan. Market bottoms don’t come with a signpost. There’s no one waving a flag saying, “the worst is over, come on back!”  The end of a bear market looks an awful lot like the middle, and investors who miss out on the ride back up tend to lose spectacularly. That’s because the best days and worst market days tend to cluster. Sit the bear market out, and you’re likely to miss out on the whole play.  We don’t know how long this bear market will last. But we do know that panicking and blowing up a carefully crafted strategy is the worst thing to do right now.  Furthermore, those with a well diversified and balanced portfolio, aren't feeling the same pain as the overall market indices - a true benefit to diversification, and proof that it works!

In the meantime, I'd like you to remember these 4 things:
  1. Bear markets are part of the stock investing landscape and we have to live through them to see the next bull market.
  2. You can’t enjoy the upside of the roller-coaster if you get off at the bottom.
  3. I continue to monitor markets and make tactical adjustments (rebalancing portfolios and tax-loss harvesting) as conditions dictate. 
  4. Relax. We planned for this.
The best response is to acknowledge what you’re feeling, reach out at any time if that would be helpful, and have confidence that I am on top of the situation.

Now, onto the links below.  Stay healthy, and stay sane!

 

Best Regards,

Ryan Mohr, CFP®


Clarity Capital Management 1st Quarter 2020 Market Commentary 


       

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