Investment Focus | Issue 6 | Market Meltdown & Oil War

This week, the sell-off continued and after today’s (March 11th) loss, we are now officially in a bear market (a loss of 20% or greater) for the first time in…...
"
March 12, 2020
by Dan Lambert

Investment Update – Market Meltdown & Oil War

Here Comes the Bear

Since the last newsletter, the market has been moving in all directions.  This week, the sell-off continued and after today’s (March 11th) loss, we are now officially in a bear market (a loss of 20% or greater) for the first time in 11 years! Not only has there been continued fear regarding the economic impact of the coronavirus, but we had the largest drop in oil prices since the invasion of Kuwait (30%).  This was a one-two punch that pushed the market over the edge.

Over the weekend, there was a standoff between Saudi Arabia and Russia regarding decreasing oil supply (due to lower demand) which resulted in the Saudi’s playing a game of chicken and deciding to increase production.

Are We at the Bottom?

No one knows.  There has been an increase in strategists claiming we are near a bottom (amongst them Jim Paulsen).  However, based on history, the bottom is never settled quickly, and we likely will have more down days to come. What we do know is we are in an environment of panic selling, and the panic has likely not abated.  Warren Buffet was asked about the market today and he responded,

“If you stick around long enough, you’ll see everything in markets.  And it may have taken me to 89 years of age to throw this one into the experience, but the markets, if you have to be open second by second, they react to news in a big-time way.”

We live in a 24-hour news cycle which helps perpetuate the panic.  Still, Buffet believes 1987 and 2008 are far worse than what we’ve seen so far.

What Should We Do?

Regarding what to do, the answer remains the same: stay invested.  This is not intended to be a flippant response.  As advisors, we are not immune to the same emotions and fears as our clients.  However, corrections, as uncomfortable as they can be, are a natural part of the investment cycle and over the long term, investors who stay invested – rather than trying to time the markets – have been rewarded.

This market decline may also represent an opportunity to buy quality companies at attractive prices. If you have extra money sitting on the sidelines, this could very well be the opportunity you have been waiting for.

I’ve included the chart below to demonstrate the risk of not being invested and missing out on the stock market’s best days, which often come after large declines like we have recently seen.

Dont miss the best days graphSource: Morningstar, NEI Investments, S&P 500 TR in USD and do not include dividends.

What Are We Doing?

As your advisors, we are keeping abreast of the situation and following economic and thought leaders.  We are also keeping in touch with you through regular communications and will be sending out these newsletters on a weekly basis (rather than quarterly), mindful of the situation we are all facing today.  It’s also important to remember the fundamentals of diversification.  Our recommendations are based on time-tested values, with risk mitigation based on proper asset allocation strategies and risk tolerances.  Those best-in-class solutions have top industry leaders at the helm of this crisis.

One asset class that hasn’t been talked about in the news is fixed income (bonds).  We have seen news about yields falling, but not the positive side of this:  the rising price of bonds.  What that means to our clients is that their bond funds have increased in value (between 3-6% depending on the type of fund).

For our retired or risk adverse clients, the fixed income is providing a cushion to their portfolios.  It’s important to remember that just because the index goes down by 20%, it doesn’t mean your portfolio went down that much.

Looking Ahead

Again, the price of oil, the coronavirus, a recession, etc, still do not impact our view of what the markets are going to do in the next 5, 10, or 15 years down the road.  Our advice is to be vigilant with your health, and don’t let the headlines lure you into a short-term response that will undermine your long-term investment success.

We have helped you prepare as best we can and are monitoring the situation daily.  Furthermore, we commit to continue serving you as we have done in the past and will continue to do during this difficult period in time.

1 Comment

  1. Bev Albert

    Thanks for the info which gives us some direction and I hope I live long enough to regain the loss.

    Reply

Submit a Comment

Your email address will not be published. Required fields are marked *

Read more from Caldwell Advisory

2023 ReCap

2023 ReCap

As we start the new year, let’s quickly review 2023. Investors faced many challenges last year, including elevated inflation, interest-rate hikes, geopolitical conflicts, and a slowing global economy. That said, those who were patient and rode out the volatility were...

read more
Investment Focus | Issue 17 | Keep Looking Long Term

Investment Focus | Issue 17 | Keep Looking Long Term

It’s fair to say that everyone is happy to see September end, at least from an investing standpoint. It was a month full of market volatility due to stickier inflation data and the U.S. Federal Reserve’s commitment to higher-for-longer interest rates. The markets had been expecting central banks to already be discussing rate cuts, but that hasn’t been the case. On top of that, September tends to be one of the worst months historically for the stock market, and this year was no different.

Near the end of September, the markets were looking toward the risk of a government shutdown, that ended up being kicked down the road.

read more
Investment Focus | Issue 16 | Staying Steady Amidst Economic Shifts: US Debt, Canadian Rates, and Recession Outlook

Investment Focus | Issue 16 | Staying Steady Amidst Economic Shifts: US Debt, Canadian Rates, and Recession Outlook

The likelihood of a recession in Canada is a topic creating buzz among experts. Accountancy firm RSM Canada projects a 60% chance of a recession occurring by the end of 2023, although they believe it would be relatively mild and short-lived. They anticipate that specific sectors, like the labour market, could potentially shield a significant portion of the economy from recessionary effects.

read more