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I hope your week is off to a great start!
I hope this finds you and your family safe, healthy and doing well! Wow! How much our lives have changed in a little over a month. Not too terribly long ago we were celebrating Punxsutawney Phil not seeing his shadow and the potential early onset of Spring. Now, we’re celebrating the warmer weather being ushered in as hopefully another arrow in our quiver to help to eradicate a virus that started across the world in Wuhan, China.
I hope this finds you and your family doing well!
Part of our communication protocol is to reach out to you when the equity markets enter bear market status – down more than 20% at closing from a previously established high. We did that near the end of last week on both the Dow Jones Industrial Average and the S&P 500. You will note that we sent a similar communication when we entered correction territory (down 10%) on February 28th. The S&P 500 needed only 16 days to go from a new all-time high, on February 19th, to a bear market, resetting the previous record of 28 days.
You may be wondering why it’s called a bear market. The term bear market gets its name from the way a bear attacks its prey, swiping its paws downward. Similarly, the bull market, an upward trending market with an absence of a 20% decline, gets its name from the way a bull attacks, thrusting its horns into the air. The present bear market brought to an end the longest bull market in history at just over 11 years, almost to the day. And here’s the kicker… both bull and bear markets are arbitrary, made-up numbers to fit nicely in a box so we can understand them. To me, the decline we experienced from September to December of 2018, down 19.8%, sure felt like a bear market, although it did not technically qualify. And, neither did April to December of 2011, when the equity markets fell 19.4%. At this point, the definitions are irrelevant. The fact is the markets are down and so are our accounts.
The dizzying volatility over the past few weeks has left all of our heads spinning as we wait for containment efforts in the United States and elsewhere to help slow new cases of COVID-19 (coronavirus). Public health is of course our primary concern. But beyond that, from an economic and market perspective, there are many difficult but important questions:
I hope you and your family are well! Yesterday, March 9th, was the eleventh anniversary of the final bottoming process of the bear market from 2007 to 2009. How ironic that the world elected to celebrate this iconic anniversary with, you guessed it, another panic attack.
In a move in which the timing was more compelling than the decision itself, the Federal Reserve (Fed) announced this morning that it unanimously decided to cut its policy rate by 50 basis points (0.5%) from the 1.5-1.75% range to the 1-1.25% range. The surprise move marked the Fed’s first rate action outside of a regularly scheduled meeting since October 2008.
I hope this finds you and your family doing well! Part of our communication protocol is to reach out to you when the equity markets enter correction status-down more than 10% at closing from a previously established record high. We did that yesterday on both the Dow Jones Industrial Average and the S&P 500.1 When we experience these kinds of swings, I think it is important to understand that corrections are a common occurrence though usually not as swift as what we have experienced this week. From 1949-2018, a 5% or more decline from a previously established high has occurred about 3 times a year. A 10% or more correction happens about once a year.2
Stock markets modestly lower after renewed coronavirus concern. Apple’s announcement that the coronavirus would impact sales had international markets striking a cautious tone overnight, with the technology sector getting much of the attention. The MSCI Asia Pacific was down just over 1%, while major European indexes and S&P 500 Index futures have posted smaller losses. While it appears that the spread of the virus may be peaking, and markets and economies have shown resilience with similar outbreaks, markets are closely monitoring the risk of the impact falling outside of expectations.
Fourth quarter earnings season kicked off this week with 24 S&P 500 Index companies slated to report results. Our expectations are for a marginal increase in S&P 500 earnings per share (EPS) on a year-over-year basis, based on current FactSet consensus estimates (-2% year over year) and the average historical upside of roughly 3 percentage points.