Investors are currently trying to estimate the duration of the coronavirus’ impact. Markets like clarity, but it’s currently a struggle to value stocks when there is little clarity on the ultimate impact on corporate earnings and the broader economy. As a consequence, the S&P 500 entered bear market territory this week, down over 20% from the recent all-time highs in February. We expect the virus’ health impact will be with us for several months. As more public and private events are cancelled or postponed, the potential short-term economic impact is increasing.
We believe trying to time such a volatile market is not the best approach. History shows that missing just a few up-market days can lead to an underperforming portfolio. If the current time period is ultimately defined as a recession, which is likely, we believe it will be short lived and that our clients’ portfolios are constructed to withstand the current volatility. In the meantime, we believe more monetary and fiscal stimulus is coming and will help offset the near-term pain for businesses and individuals most hurt by the coronavirus.
We believe diversification allows investors to smooth out the ride if stocks are shocked by a short-term event or a longer bear market. In general, bonds have outperformed stocks over the last year as we’ve seen a dramatic move to historic low yields. Consequently, for most clients we will increase liquidity by moving a portion of our bonds to cash that can also be used for investment opportunities going forward. We will continue to monitor the economic data and make changes to our allocations if our perspective changes on the economic impact.
Although tough to stomach in the short-term as markets churn, one of the most important elements of a financial plan is staying invested over time. Short-term returns over a one year period are historically more volatile, as shown in the chart below, but as investors stay invested over longer time periods, investors have been able to achieve positive returns historically.
We hope that you and your family stays safe at this time. If you would like to discuss further please contact a member of your service team.
Source: JP Morgan Asset Management Guide to the Markets, data for the period 1950-2020
Disclosures: The information reflects Homrich Berg’s views, opinions and analyses as of March 12, 2020. The information is provided for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any investment product. The information does not represent legal, tax, accounting or investment advice; recipients should consult their respective advisors regarding such matters. Certain of the information herein is based on third party sources believed to be reliable but which have not been independently verified. Past performance is not a guarantee or indicator of future results; inherent in any investment is the risk of loss.