Coronavirus Scare

Coronavirus Scare –

US markets entered 2020 at overbought levels poised for a drawdown.  The global economy was bouncing back from a difficult 2019 and a manufacturing recession in some parts of the globe.  The US-China phase 1 trade deal was helping to boost sentiment.   What we did not expect was a global pandemic scare with the coronavirus that originated in China and has now made its way to Italy and Iran.

To understand Monday’s massive market move and what it means for future returns I turn to the below excerpt and chart from Bespoke Investment Group, one of our trusted research sources:

“It’s hard to find positives on a day when the S&P 500 is down 3.5%, but we’ve at least got some notable stats that are quite bullish for returns going forward.

If the S&P 500 were to close at current levels, today’s 3.55% decline would be the 48th biggest one-day drop since SPY began trading in 1993.

Today’s drop is also the biggest Monday decline since February 5th, 2018 when SPY fell 4.18%.

As shown below, 2%+ drops on Mondays have historically been bought with a vengeance in the near term.  Since March 2009, there have been 18 prior 2%+ drops on Mondays, and SPY has seen an average gain of 1.02% on the next day (Turnaround Tuesday).  Even more impressive, over the next week, SPY has averaged a huge gain of 3.16% with positive returns 17 out of 18 times.  And over the next month, SPY has averaged a gain of 6.08% with positive returns 17 of 18 times as well!”

  • Bespoke Investment Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

www.bespokepreimum.com

What are the implications for our clients?  We remain focused on using a barbell approach of taking risk in equity markets where we see opportunities and using high quality fixed-income and Liquid Alternatives to provide safety within our portfolios.  We continue to monitor for follow-through risks to the economy but do not see a reason at this time to alter our allocation.

Please feel free to give us a call if you would like to dig deeper into our thought process.

These are the opinions of Antonio Belmonte and not necessarily those of Cambridge, are for information purposes only, and should not be construed or acted upon as individualized investment advice.  Investing involves risk.  Depending on the types of investments, there may be varying degrees of risk.  Investors should be prepared to bear loss, including total loss of principal.  The strategies discussed herein are not designed based on the individual needs of any one specific client or investor.  In other words, it is not a customized strategy designed on the specific financial circumstances of the client.  However, prior to opening an account, Cambridge will consult with you to determine if your financial objectives are appropriate for investing in the model.  You are also provided the opportunity to place reasonable restrictions on the securities held in your account.