Today we present another installment of our COVID-19 client communications. To date our communications have been focused on the pandemic, cases in the U.S. and across the world, and the devastating effects on the global economy and investment markets. In this note we will focus on the current virus status and the outlook for a return to normalcy for our lives and economy. But, before we get to that it makes sense to take at least a quick look at recent market conditions. After hitting what is currently the cycle low on March 23rd, where markets were down a full 35% from the previous high in February, an impressive market recovery has started. As of Friday, April 17, the market is now down “only” ~16% from the February high, a 26% recovery from the cycle low.
We present you with another of our market-related emails, during this COVID-19 crisis. This past week hasn’t been quite as dramatic as previous weeks, but enough so to justify another communication. The S&P 500 hit its current cycle low on Monday, March 23 at a level about -35% lower than the previous all-time peak hit on February 19. It’s been a very fast downward fall, as the markets have been trying to resolve the question of how far the coronavirus will go and how much economic damage will be inflicted. Risk assets (i.e. stocks) took the major initial hit. Bonds held up, and in some cases saw gains in these early stages, but by about March 17 that trend ended and bond investors started selling and prices declined rapidly.
Significant Volatility in the Markets
Well, I’m back with another market-related email. We have continued to see significant volatility in the markets, and we’ve talked with many clients over this time. The following are our most recent thoughts about the markets, COVID-19 and how this entire situation seems to be playing out. Not unlike our last email I’m coming back to how our thoughts have evolved in the past week. I again repeat the same two areas of concern; 1) the market impact is now more significant than we expected (markets down -30% at worst so far), and 2) we feel the recovery time could be longer than our last six to nine-month estimate, now pushing back to nine to twelve-months.
Our Views of the COVID-19 Impact
Please recall the note we sent out a couple of weeks ago. At the time we wanted to review our thoughts on the market declines associated with the coronavirus disease 2019, a.k.a COVID-19. Since then our views have changed slightly in two important areas; 1) the market impact is now more significant than we expected (markets down -20% at worst so far), and 2) we feel the recovery time could be longer than our original three to six-month estimate. Our new estimate is six to nine months, with an outside chance of a full year.
I think the last time I sent out a client market note was in October 2018, during that 4th quarter market meltdown we experienced. At the time I suggested markets were over-reacting to negative sentiment, that the underlying economy was still strong, and that I expected a six to nine-month recovery. The actual recovery took a bit less than four months.
Coronavirus Disease 2019
Today we face the global concerns over the Coronavirus Disease 2019 (a.k.a. COVID-19), a virus strain initially found in China believed to have been derived from human/animal contact. The disease affects the respiratory system and is highly contagious from those infected. Cases of infection from those not infected, otherwise referred to as “community” infections are just in the very early stages of confirmation.