Market Call: Coronavirus, Global Economics and Your Portfolio - What's Next?

Investing cash can be difficult when fear is high. However, doing so when others are fearful provides the best opportunities. We have seen significant asset price dislocation and for long-term investors, this is a good thing. Can the stock market go lower? Certainly. Adding to positions that make sense because your financial plan allows for them will add value over time.

Now is a perfect time to revisit your financial plan and the resulting asset allocation. Your feelings toward risk are likely being tested with the current volatility in markets. Reviewing your plan and talking to your advisor will help you determine whether your asset allocation is still correct or if it needs to be updated.

Near-term, the housing market will be disrupted by the significant increase in unemployment. However, as the economy recovers, and people return to work, demand in the housing market will return and prices will be lower. It is likely that interest rates will remain low for some time keeping the cost of borrowing low. Finally, the demand from the younger generation will continue to outstrip supply and that means the recovery in housing will continue with the economic recovery.

The rationale for the stay at home orders across the globe was meant to provide breathing room for the health system. We can see from the experience in Italy and Spain that when the system is overwhelmed the morbidity rate from the COVID-19 virus is higher. Still, as we move into the summer months we will begin to slowly reopen the economy. However, until a treatment or vaccine is available, distancing and rolling closings may continue. This suggests that the recovery will take some time.

If your portfolio is well diversified it is unlikely you will lose everything. The majority of our investments are in domestic and global companies who are leaders in their respective industries. Most have the strongest balance sheet and levels of cash we've ever seen, suggesting they are well positioned to manage the crisis and their return to full activity.

We won’t, and we shouldn’t try to determine when we have. It is nearly impossible to identify market tops and bottoms with a great deal of accuracy. In addition, we know that missing just a few of the biggest up days can substantially reduce investment performance over years. Following a plan and sticking with your asset allocation and a rebalancing approach makes the most sense.

Target date funds will rebalance their stock allocations when the market moves substantially. This action is what provides them the best opportunity to provide returns for the time horizon of the target date fund. If the final year of the fund is appropriate for you then the way in which it is rebalanced is also appropriate.

A recession is defined as two calendar quarters of economic contraction. A depression is a contraction that lasts much longer. We don't believe a depression is likely. What we are seeing is a temporary shock to the global economy resulting from a near complete shut-down to allow the health care systems the opportunity to treat patients without becoming overwhelmed. The U.S. has spent billions building health care capacity and we may be seeing a slow-down in the infection rates. While it will be some time before a treatment or vaccine is available, we will begin to see a return to normal, albeit slowly. This will likely lift the economy from its current malaise before a “depression” would occur.

Too much debt is a problem for any individual, company or country. Defining “too much” is more difficult. Many of the programs announced by the Federal government and Federal Reserve in the last four weeks are meant to provide a replacement for income or company revenue. Some are forgivable, some are not. Borrowing from the future for the current problem may make sense. We still see a pick-up in growth resulting from the large generation of people in their 20’s and 30’s who will reach peak earning and consumption years over the next decade. This should lift economic growth and assist in the reduction of debt if policies allow.

Understanding your financial plan in terms of needs, wants and desires makes the most sense. In times of market and economic stress, focusing on needs makes sense.

Tracking the rate of return to employment, personal income and business activity will provide the best data.

All businesses are being affected. Small businesses, those with fewer than 500 employees account for less than half of all employment and about one third of the economy. Those with fewer than 50 employees make up one quarter of these. Because many of these operate on thin operating margins and are in the hospitality and leisure industry, they are most affected. Winners will be those with stronger balance sheets, thriving business models and talented employees. Those that aren’t able to weather the 3 to 6 month slow-down will likely cease to exist.

There are many technologies we are all learning to use more quickly that aid in working remotely. This rapid adoption will result in greater work-from-home efforts. The size of the health care industry will grow. Home delivery of everything from groceries to hardware store items will accelerate the pace at which the retail industry changes as many more of us learn how quickly we can get what we need.

We’ve all seen the pictures of cleaner air over cities in the U.S., Europe and China resulting from the reduction in economic activity. The move toward electric and hybrid vehicles as well as autonomous vehicles may be accelerated as a result of this outbreak.

Do we need significantly less dependence on foreign good relative to our supply chain? Do we need to think about different technologies for effective live communications? Will companies have a different approach to travel, remote contact, where employees live etc?

The effect of the outbreak on the heels of our trade war over the last 18 months cannot be underestimated. Supply chain diversity and moving aspects of manufacturing and assembly closer to consumption will absolutely take place as a result of the pandemic impact. Companies involved in logistics, and the redistribution of the supply chain will be beneficiaries, along with countries whose proximity to the largest areas of consumption provide them an advantage.