Market Update 3/17/20

Markets have closed below their respective supports yesterday and as well as this morning, but markets are now above this critical support. As of 3:49pm EST, markets are up 5%+. 10 more minutes to go!

So what happened this week so far?

The Federal Reserve attempted to calm markets on Sunday, but this was an utter failure, with markets opening up on Monday limit down, hitting a 2nd worst day of losses since 1987.

Powell, the Fed Chair, has had a history of bad calls and this is another misstep that he will likely have to remedy, hopefully, sooner rather than later. This could soon be dubbed the next “Powell Pivot”, where back in late 2018 he repeatedly promised incremental rate hikes and put quantitative tightening on autopilot, which sent markets crashing in Q4 2018. However, only a few weeks later, he did a complete 180 and promised not to raise rates and stop QT in January. This, of course, sent stocks roaring.

Now, the Fed not only needs to coordinate with Steven Mnuchin at the Treasury but also, with the help of congress, implement greater stimulus packages immediately.

Luckily, the Fed still has a number of tools at its disposal that could be a life-saver for the economy and keep the US and the rest of the world from entering a deep, dark recession or even a global depression.

The most important of these is Section13(3), which coincidentally needs the approval of the Treasury, but at Powell’s last press conference, stated that the Fed and Treasury are separate entities and will work independently. Wow! Maybe in normal times but this is not normal! Hence why the markets crashed on Monday!

Nonetheless, Section 13(3) was used during the last financial crisis, including the Troubled Asset Relief Program (TARP) and the Term Asset-Backed Securities Loan Facility (TALF), and both can be used again this time around.

The Fed and Congress basically need to approve around a +/- $2 trillion TARP-like package to have it offset the loss in wages and commerce the economy will likely experience. Given the growth over the last decade, this amount would be relatively the same dose the economy received in 2009.

The Families First Coronavirus Response Act, which was passed, not only took way to long to get passed, it won’t be enough.

A second TARP-like program would also not be a bail-out, but rather a distressed lending facility for business with immediate cash needs. So, you would think it would already be in the works. Hopefully, it is!

There still is hope, but uncertainty remains at a peak with a bad case scenario of markets dropping another 20% – 30% or so.

Everyone is asking, so what should I do with my investments?

Investors simply need to stick with their long-term perspective. My guess is things will eventually rebound and rebound quite strong. The US economy will recover and, as time passes, markets will go up. It just may be a bit bumpy for another several week, maybe even months. But, high-quality companies will still be in demand down the road and stocks will achieve new highs, eventually.

Selling now and trying to time the markets in this extremely volatile time is practically a fool’s game. The probability of timing the selling this late in the game and re-buying at a lower point has very low odds of success, especially for the non-professional trader. If you haven’t sold, it is too late. However, there are steps that you can take to improve your risk-adjusted return, despite the circumstances.

We have remained the discipline of our investment process and portfolio frameworks, which are based on achieving optimal risk-adjusted return metrics and non-correlated diversification. Both have proven to do weather the downturn well, especially compared to the major indices. We are also taking advantage of current and future opportunities by picking up high-quality companies and moving up in credit quality as select bonds fall below their net asset value.

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