Coronavirus Market UPDATE

Coronavirus Market UPDATE

 

As I write this, we have officially entered a bear market.  The first official bear market since the 2008 financial crisis.  The spread of covid-19 has caused supply constraints, lower demand, concerns in the credit market, and worsening sentiment.  On a more somber note, the mortality rate is around 1%.  Some countries (South Korea and Singapore) have done a better job of containing the spread.  Others (Italy and Iran), not so much.  This is the quickest bear market in history

Two events are going to happen in the short to medium-term

  • We will have a recession

This is no longer a “maybe” but a “how severe”.  Cruise lines and airlines were the first to be affected.  Now larger sectors of the market are beginning to feel the heat as large events begin to be canceled and credit conditions worsen.  The severity of the recession will depend on the depth of fiscal (so far tepid) and monetary (so far ineffective) stimulus applied to the economy.

  • This will pass

We have had three recessions in the past 30 years and have always moved on to better days.  This one will be no different.  As the pandemic subsides, confidence will increase and individuals, with pent up demand, will begin spending again.  Depending on the stimulus packages provided we will get a quick V-shaped bounce, a longer U-shaped rebound, or a slower L-shaped rebound.  Hopefully not the latter.

I began to de-risk a majority of our accounts on February 28 as I believe the level of support was broken.  We have since fallen even further.  I am looking at the 2018 Christmas Eve low as another support level and will look to add back into equities gradually.  For longer-term investors this will be an outstanding buying opportunity.  For investors with a shorter time horizon, our multi-asset approach will provide a sufficient buffer from the worst of it.

As the great Warren Buffet said “be fearful when others are greedy and greedy when others are fearful”.

Be safe out there.

 

Written by:  Antonio Belmonte, CFA, Chief Investment Officer

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.