COVID-19 Crisis Market Update

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.

Federal Reserve Announcement

On March 23 the Federal Reserve (Fed) announced a large monetary support package that included support to help the bond market stabilize. Bonds have had a noticeable recovery since then. Stocks have seen some recovery recently as we had an unexpected three-day gain in the S&P 500 that started on March 24. As of the close on March 26, the S&P 500 is now down about -23%, which compared to the previous -35% is an impressive rally. That’s the good news. The bad news is that we are not convinced this is start of the turnaround. We haven’t made our final trades as yet because we think there is more room for the S&P 500 to move down. See below for more detail.

Our General Sentiment

Our general sentiment of this market situation being event driven remains in place. Not because of the three-day rally we just saw, but because of the strong underlying economic fundamentals. COVID-19 has created fear and a sense of panic for many, but we believe that panic can and will be overcome with a corresponding rebound in both our economy and markets. How long will that take?  It’s hard to say, but we remain confident the recovery could be as short as six months, to as long as 12 months. We’re not convinced we’re at the bottom, but continue to believe we are close.

A Closer Look at COVID-19 Statistics

Looking more closely at virus data, the U.S. has 85,356 cases as of March 26, per the CDC. That is an increase of 16,916 new cases from the previous day. The day before the increase was 13,987 new cases. Prior to that the number of new cases had been about 10,000 per day. We predicted this acceleration of new cases in a previous email. Unemployment claims were 3.3 million this week, which is five times greater than the largest weekly amount recorded in 1982. The accelerating new cases, and huge unemployment claims are part of why we’re not convinced this market has turned around. It remains to be seen how much further this bad new goes, and how the market will react. As devastating as it is for anyone to become unemployed due to the virus, on the plus side, the rapid high unemployment is a great indicator of just how well the U.S. is altering behavior to mitigate the virus spread. We continue to believe we have a good chance of seeing the mitigation efforts pay off and a turning point in mid-April.

We will continue to research the situation and markets and our plan continues to be to make trades as we get nearer the market bottom. We expect these trades will be profitable within a year. We firmly believe this is an investment opportunity, albeit painful along the way.

We hope this note helps explain our position as our country, and the markets, digest this terrible situation. Based on the COVID-19 guidelines we temporarily aren’t meeting with clients in-person, but please feel free to call us with questions or for further discussion.

Best Regards,

Jim

Barron Financial Group, LLP is a fee-only Registered Investment Advisor regulated by the Connecticut Department of Banking.

This newsletter is for general information only and should not be considered investment advice.  Investors should consult with a trained investment professional to discuss their particular situation.