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.
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.
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.
CFP, CIM, FCSI, CHS, RIS
Director, Wealth Planning Services | Caldwell Wealth & Estate Advisory Ltd.
Investment Advisor | Credential Securities
Along with helping people prepare for their financial futures through solid financial planning, Dan curates and manages the investment options for the firm.
Material in Dan’s articles was prepared solely for informational purposes, does not constitute a recommendation, professional advice, an offer or an invitation by or on behalf of Caldwell Wealth & Estate Advisory to any person to buy or sell any security or adopt any investment approach, and is no indication of trading intent in any fund or account managed by Caldwell Wealth & Estate Advisory. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Diversification or asset allocation does not guarantee a profit or protect against the risk of loss in any market. Unless otherwise specified, all data is sourced from Caldwell Wealth & Estate Advisory. Past performance does not guarantee future results.
Mutual funds, other securities and securities related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This report is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds and other securities.