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Investment Commentary

Where are we now?

By Brian Andrew | Johnson Financial Group • March 11, 2020

5 minute read time

This is an unsettling time due to the uncertainties surrounding the global pandemic and the economic decline it has caused. We hope that you will do everything you can to stay healthy. You can find information here regarding how to avoid the virus and what to do if you should catch it. Source: Centers for Disease Control and Prevention.

Market volatility has been unnerving over the last several days! In particular, Monday’s sell-off in stocks and decline in bond yields have everyone asking, “Why?” and “What should I do?” The sell-off in energy markets added to the stress and confusion regarding where we’re headed. I heard a financial advisor on the evening news say, “Stay the course.” That doesn’t feel like a great answer to these questions, even though it may be the right advice. Let’s get more specific.

Our Beliefs

In our work with clients, their goals drive financial plans which in turn dictate our investment strategy. Plans are based on the clients’ time frame over which we are making investment decisions. These plans are stress tested for many environments, including ones like these.

We believe that if our investment strategy is based on those well-thought-out plans, then the approach will produce the desired result over the time frame we’re planning for.

Markets can be volatile, and that volatility usually comes from uncertainty. Unlike 2008 and 2009, this is not a financial system crisis. This is an environment where the global epidemic has created concerns about the long-term health of the economy. As we know from past episodes, however, the epidemic will pass and economic activity will return.

Our process of planning, investing and understanding the valuation of markets will provide a framework for decision-making as we move forward.

Our Actions

We monitor price action each and every day across global markets: stocks; bonds; commodities; real estate; hedge funds; private equity and so on. We also understand what drives prices over the short and long-term, and how sometimes prices become disconnected from the way in which securities should be valued, especially when unknowns become most prominent.

To the extent prices reach extremes or dislocate from what we believe may be the fundamental underpinnings of valuation, we can act. As an example, Treasury yields have fallen by over 80% due to investors running from risk and the expected decline in economic activity. We believe that we should own less fixed income (bond prices rise when yield falls, and prices are up over 13% this year!) and reduce the average maturity in portfolios. This reflects our view that the extreme level of risk aversion and monetary policy have led yields to unsustainable levels for the long term. We aim to take advantage of this.

What We’re Watching

We are watching economic activity in China each day. This is where the COVID-19 outbreak began and the most serious efforts at containment were attempted. This is important for two reasons. China is the second largest economy in the world, and its economy has a significant impact on much of Asia and the European companies focused on exports. It should also be a harbinger for how the rest of the world’s containment efforts and return to productivity look because China began to deal with the outbreak in earnest in January.

We are also watching the steps taken from those responsible for U.S. fiscal and monetary policy to combat both the potential deleterious effects on our economy and the health of our nation. Policy changes affect people’s perceptions and therefore sentiment about the future, as well as the reality markets operate in.

As an example, when the Federal Reserve (responsible for monetary policy) lowered interest rates last week, it was attempting to reduce the cost of capital, making it more available. Perhaps more importantly, when it engaged in “liquidity” activities this week, it was standing behind the reasonable operation of credit markets.

We have heard from the Trump administration that they are looking at a number of alternatives, including support for industries most affected such as travel and hospitality (similar to what was done for the auto industry in 2009), corporate and individual tax relief, and other measures. These will affect sentiment, and when specifics are shared, we’ll be better able to understand the impact on the economy and markets.

Of course, we don’t know how the outbreak will continue to spread. We do know that containment will only provide so much help and that the change in seasons may lead to a decline in cases and an improvement in economic activity. This will lead to a change in sentiment and perhaps an uptick in stock prices.

Our advisors will continue to monitor financial plans and your objectives. They are prepared to discuss the recent market changes and the effect on those plans. We appreciate how difficult this environment can be and are interested in helping you and those you care about understand what this means for the assets you’ve invested to achieve your goals. Call or email me or your advisor.


Brian Andrew

Brian Andrew

Chief Investment Officer | Johnson Financial Group

As Chief Investment Officer, Brian Andrew leads Johnson Financial Group's investment strategy to provide consistent, actionable investment solutions for our clients.


This information is for educational and illustrative purposes only and should not be used or construed as financial advice, an offer to sell, a solicitation, an offer to buy or a recommendation for any security. Opinions expressed herein are as of the date of this report and do not necessarily represent the views of Johnson Financial Group and/or its affiliates. Johnson Financial Group and/or its affiliates may issue reports or have opinions that are inconsistent with this report. Johnson Financial Group and/or its affiliates do not warrant the accuracy or completeness of information contained herein. Such information is subject to change without notice and is not intended to influence your investment decisions. Johnson Financial Group and/or its affiliates do not provide legal or tax advice to clients. You should review your particular circumstances with your independent legal and tax advisors. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared. Past performance is no guarantee of future results. All performance data, while deemed obtained from reliable sources, are not guaranteed for accuracy. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses. Certain investments, like real estate, equity investments and fixed income securities, carry a certain degree of risk and may not be suitable for all investors. An investor could lose all or a substantial amount of his or her investment. Johnson Financial Group is the parent company of Johnson Bank, Johnson Wealth Inc. and Johnson Insurance Services LLC. NOT FDIC INSURED * NO BANK GUARANTEE * MAY LOSE VALUE