Market Update April 9, 2020
The first quarter of 2020 can best be described as catastrophic as countries around the world grappled with how to contain the spread of the coronavirus. You know things are bad when people have concerns greater than a major meltdown of the financial markets. It is times like this that can help give us perspective on the things that matter most in life as our concerns turn to the well being of our family, our friends, and the rest of humanity. The financial markets have attempted to navigate the impact of what has been an unprecedented government response to a health crisis as businesses worldwide have been shut down and citizens told to stay at home. Going into this crisis, financial market experts examined the impact past health crises have had on the markets, such as Ebola, SARS, and the swine flu. Past comparisons proved for naught, unfortunately, as these epidemics did not lead to a complete shutdown of the global economy like we have seen now.
The impact to the stock market has not been pretty. The major U.S. stock indexes were down in the range of 19-33% in the first quarter. The major foreign stock indexes were down approximately 23%. It was the worst quarter for stocks since the global financial crisis in 2008 and the worst first quarter ever. Bonds were a mixed bag. While Treasuries did very well, corporate bonds were in the red. Even the normally placid municipal bond market saw tremendous volatility in late March.
Looking ahead, we should expect to see a stream of dire economic reports. I frankly view these as being pretty meaningless at this point. Of course the backward looking economic reports will look terrible on account of all the businesses that had to close. In the same way, the reports coming out in late February and early March saying how great the economy was also proved meaningless. I think all the financial markets really care about right now is whether or not the virus situation is believed to be getting better or worse, and how soon businesses can resume business. The markets seem to already be anticipating the ship starting to turn, as April is off to a very positive start. However, I think it is unrealistic to expect our economy to make a V-shaped recovery and be right back where we were in short order. We are likely already in what will eventually qualify as a recession. While there is a fairly high probability that we will see a re-test of last month’s stock market lows, stocks typically bottom well prior to the end of a recession.
In a stock market panic like we have witnessed, investors sometimes lose sight of their time horizon. Selling stocks when they are down can lead to a permanent loss of capital and is a mistake most investors can ill-afford to take. This danger occurs most frequently with investors in retirement or nearing retirement. Retirees who have planned ahead can take comfort knowing they typically don’t need to liquidate stocks in a downturn and can use cash and bond holdings to fund their annual income needs.
I am encouraged by progress being made in other countries which should be indicative of how things unfold here. Large U.S. corporations including Starbucks, Nike, and Apple have commented on a resumption of business in China. Also, central banks around the globe are flooding their economies with cash which historically bodes well for the financial markets. The plunge in energy prices is also a plus for consumers and countries that are dependent on foreign oil.
Congress recently passed the largest stimulus bill in history, known as the CARES Act. This Act includes some provisions for people with retirement plans. One of the provisions is that required minimum distributions (RMDs) are not required in 2020. Also, the deadline to contribute to an IRA or Roth IRA for 2019 has been extended along with the deadline to file taxes to July 15.
I hope you and your family are healthy and doing well. Do not hesitate to contact me if you have any questions or concerns.
Sincerely,
Glenn S. Rank, CIMA®
Certified Investment
Management Analyst®
President
GSR Capital Management, Inc. is a Registered Investment Adviser. This market update is solely for informational purposes. Advisory services are only offered to clients or prospective clients where GSR
Capital Management and its representatives are properly licensed or exempt from licensure. GSR Capital Management is not a tax advisor. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by GSR Capital Management unless a client service agreement is in place. If you do not wish to receive marketing emails from this sender, please send an email to info@gsrcapitalmanagement.com.
Expressions of opinions are as of this date and are subject to change without notice.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
International securities involve additional risks including currency fluctuations, differing financial accounting standards, and possible political and economic volatility, and may not be suitable for all investors. Investing in emerging markets can be riskier than investing in well-established foreign markets. Keep in mind that individuals cannot invest directly in any index and index performance does not include transaction costs
or other fees, which will affect actual investment performance. Individual investor’s results will vary.
Investments & Wealth Institute™ (The Institute) is the owner of the certification marks “CIMA,” and “Certified Investment Management Analyst.” Use of CIMA, and/or Certified Investment Management Analyst signifies that the user has successfully completed The Institute’s initial and ongoing credentialing requirements for management professionals.