On Monday and Tuesday of this week, the Dow Jones Industrial Average fell nearly 2,000 points, falling from historic highs by approximately 6.5%. The spread of Coronavirus to countries such as Korea, Iran and Italy sparked the selloff which was compounded on Tuesday when the CDC warned Americans that a spread to the United States was highly probable.
The Facts:
Coronavirus (COVID-19) was first detected in the Hubei province of Wuhan City in China in December 2019. Since then, the disease has spread to a number of other countries with confirmed cases totaling over 81,0001 (as of 2/26/2019).
Concern in U.S. equity markets had been somewhat limited until Monday (2/24/2020) when reports of a spread in Korea, Iran, and Italy sparked concern of a possible spread to the United States and that the spread was more than originally indicated. On Tuesday (2/25/2020) the CDC warned Americans to prepare for a spread to the United States that could lead to significant disruptions in daily life.
The impact to the global economy remains uncertain, and it is likely that data will be challenging to interpret until later in the year and potentially into early 2021. Containment of the virus will have an impact on economic growth, and we will continue to monitor.
Gryphon’s Position:
While there is a high degree of uncertainty, and the data is changing daily, our base case is that global economic activity could slow significantly before improving throughout the remainder of the year. Nobody can tell with certainty whether the COVID-19 outbreak will begin to recede or if it will spread into a true global pandemic (which would slow the economy for longer). However, it is our belief that the ensuing economic recovery will be swift, unlike the recovery following the 2008 Financial Crisis.
In 2008, the economy crashed as a result of a housing bubble, poor lending practices, and excessive consumer debt levels. It is our opinion that today these imbalances in the economy are dramatically reduced. Heading into 2020, Coronavirus aside, manufacturing was showing signs of a rebound, monetary policy was accommodative across most of the globe, and strong consumer spending was underpinning a relatively strong U.S. economy. If history is any guide, pent up demand should boost the ensuing economic recovery.
As our Investment Committee evaluates our portfolio, we are reminding our clients the following:
Volatility will likely rise and come off record lows:
Economic data will be challenging to interpret, and the spread of the virus could get worse before it gets better. Coupled with the upcoming Presidential Election, uncertainty is likely to persist. Our Investment Committee strives to construct portfolios with this in mind, especially as the U.S. has experienced the longest bull-market in history with uncharacteristically low volatility.
Position your portfolio with your long-term goals in mind:
Our team strives to structure our portfolios in a proactive manner, not a reactive one. We have proactively structured our allocation in a manner that we believe gives us a high probability of achieving clients’ long-term goals. If we react to near-term downside volatility by substantially changing our allocation in the short-term, it is our opinion that we introduce additional risk that could prevent us from achieving these long-term goals.
Allow us to worry and go enjoy life:
We stress to our clients that money and wealth are tools to be used to reach a greater goal. We have spent many hours working together to construct the plans needed to use this “tool” to reach those goals. We remind our clients to remain confident in those plans, as it is their goals that drive our decisions. If something substantive changes in the global economy, we will determine the necessary adjustments and proactively contact you. We are here to have our clients’ sleepless nights for them.
Disclosures:
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Facts presented have been obtained from sources believed to be reliable. Gryphon, however, cannot guarantee the accuracy or completeness of such information. Opinions expressed herein are based on economic, market or other conditions at the time this material was written. Actual economic, market, or other conditions may turn out differently than anticipated.