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April 16, 2020
By Thomas E. Nugent Executive Vice President, Chief Investment Officer PlanMember Securities Corporation
Over the past six weeks, the world has undergone an experience that has changed the way we live and work. The coronavirus pandemic and related government mandated economic shutdowns have sacrificed economic growth for the prospect of defeating the coronavirus pandemic. The crisis was amplified when an oil price war between OPEC and Russia forced oil prices to collapse below $20 per barrel, introducing the prospect of mass bankruptcies in the energy sector. As these crises were unfolding, financial markets buckled under the pressure with the Dow Jones Industrial Average falling from a record high of 29,568.57 on February 12th to 23,949.76 on April 14th, a decline of 19%. Many stocks were hit even harder as certain sectors are more exposed to the pain of the virus and its corresponding lockdowns.
An Unprecedented Government Response
The government’s response to these events has been unprecedented. The Administration proposed and the Congress approved a multi-trillion-dollar spending program to offset the government’s mandated shutdown. The Federal Reserve also announced a $2.3 trillion program to back up the ability of markets to continue to function without liquidity roadblocks. Further multi-trillion-dollar spending programs are on the drawing board to help support the economy during these difficult times.
Recent data on the progress of the fight against the coronavirus is encouraging. The required shutdown of non-essential businesses plus the cooperation of most Americans on the physical distancing requirements appears to be bearing fruit. The projected cases and deaths from the virus have shrunk dramatically. Daily reports by the Administration provide Americans with an update on what is happening in the battle with the virus. The next important step will be the commitment of the government to announce the relaxation of the shutdown that will gradually get workers back to work. Any relaxation will have to be gradual and mindful of the potential for additional outbreak. As there is no clear method for how to restart the economy, daily life will still be affected until either a cure or vaccine is developed. As such, it may be some time before we experience what we once knew as normal.
Turbulent Markets
For equity investors, this has been a troublesome period. After exuding in the longest bull market in history and with what seemed like clear sailing on the horizon, investors were blindsided, and financial markets were hit with the double whammy of the virus and an oil price collapse. The shortest bear market ensued with markets declining more than 30% in March and some individual stocks falling 80% or more. Just as quickly, the stock market recovered half of its losses even though the solution to the virus was not within reach nor was an agreement among oil producers of a substantial cut in production viable. Indeed, a breakdown in talks over oil was narrowly avoided as President Trump intervened to bring Russia and the Saudis back to the negotiating table by pledging reductions in output on behalf of Mexico.
PlanMember’s Response
PlanMember has made several portfolio changes to help add value during this volatile time. In the shorter-term portfolios, we added defensive positions and allocated away from specific areas that are likely to be negatively affected if the situation continues to deteriorate. In our more aggressive PlanMember Portfolios, we have generally avoided selling out of stocks as these portfolios are designed for individuals with higher risk tolerances and longer time horizons. As such, for someone with a 20-year or longer time horizon, current tumultuous market conditions may offer decent buying opportunities for someone who is dollar cost averaging.
Past performance does not guarantee future results.
Asset allocation or the use of an investment manager does not ensure a profit nor guarantee against loss.
Small‐cap and mid‐cap investments may have additional risk including greater price volatility. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. The information and opinions in this report have been prepared by the investment staff of PlanMember Securities Corporation. This report is based upon information available to the public.
The information herein is believed to be reliable and has been obtained from sources believed to be reliable, but PlanMember makes no representation as to the accuracy or completeness of such information.
Securities and advisory services are offered through PlanMember Securities Corporation (PSEC), a registered broker/dealer, investment advisor and member FINRA/SIPC.
Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss in declining markets.
International investing involves special risks such as currency fluctuation, lower liquidity, political and economic uncertainties, and differences in accounting standards. Risks of foreign investing are generally intensified for investments in emerging markets.
Dollar cost averaging does not assure a profit and does not protect against loss in declining markets. You should evaluate your financial ability to continue purchases through periods of Volatile price levels before deciding to invest this way.