byDavid Brodsky, Principal & Counselor and Jim Da Silva, Principal & SVP Client Development
Interesting times.” How often have we heard this over the last several weeks?
In periods like this, we too find ourselves watching the news, while keeping abreast of extraordinary daily market swings of 3-9%. Just a short month ago, a 1% swing would have made news headlines.
As a 34-year old financial advisory firm that has served clients across multiple market cycles, it is not lost on us that we not only need to be aware of the financial impact of events like these, but we also need to be mindful of the emotional strain that environments like this may create for our clients.
We are privileged to be in a position of speaking regularly with economists, fund managers, their teams, their competitors and our clients, some of whom lead global enterprises across technology, healthcare, consulting and education. It is our responsibility to then synthesize what we learn and present it in practical, non-charged terms for our clients. While client communication is imperative during these intervals, we are also mindful that situations can change rapidly, such that words meant to provide comfort in the morning may simply not apply by the afternoon.
In our view, the market drawdowns over the past several weeks did not result from overvalued asset prices, but primarily from the unprecedented uncertainty related to the spread and effects of the COVID-19 virus. The pullback in the markets will take time to fully measure, but the markets will recover. This is where we aim to be patient and deliberate. We believe that it is critical for investors to stay committed to their long-term goals to achieve better financial outcomes, as illustrated in the charts below.
To put things into perspective, the Global Financial Crisis (GFC) that began in 2007 took ten years to create. Our current crisis took three months to create. The government’s response times to the GFC were likewise longer than what we are seeing today. We learned our lesson in seeing the success of the Troubled Asset Relief Program (TARP) in 2008 and the American Recovery and Reinvestment Act in 2009 in helping the economy. Yesterday, lawmakers swiftly presented and the Senate approved a $2 trillion stimulus package, weeks after the virus hit the U.S. to effectively bolster the economy and provide stability to households and the businesses that employ them. Markets have responded positively. In addition, earlier this month, $8.3 billion was passed to fund vaccine development, assist state and local governments in their health response and the ability to purchase vaccines and treatments. We believe that this prudent, quick, direct action will help our economy to recover more quickly.
The one question that has everyone guessing is, when will a recovery begin and how long will it take to get back to “normal”? Nobody knows for sure, but we are starting to hear about pockets of patient recovery, ongoing vaccination development collaboration across pharmaceutical companies and universities; and manufacturing is starting to come back online in parts of China. These are trends in the right direction.
The chart below reports the historical returns of the S&P 500 (*100% equities) showing both sides of market recessions and corrections. For context, someone well beyond his or her first job, would seldom, if ever, be 100% invested in equity markets.
We recognize just how hard it is not to react given the endless media coverage of the coronavirus but we want to encourage you to trust us. We will continue to monitor the markets, the managers who manage funds in which we invest our clients’ assets and stay attuned to the quickly evolving pandemic.
In the meantime, please feel free to contact us with any questions or concerns and please extend an open invitation to family members, friends and colleagues who might appreciate the perspective that we offer.
The information provided above is the opinion of the author, general in nature and is not intended to represent specific investment or professional advice. No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from GW & Wade, LLC, which can only be provided through a formal advisory relationship. Diversification and asset allocation do not ensure a profit or guarantee against loss. Past market performance is not a guarantee of future results.
In 2007, GW & Wade joined Focus Financial Partners as an indirect, wholly-owned subsidiary of Focus Financial Partners, LLC. Focus Financial Partners Inc. is the sole managing member of Focus Financial Partners, LLC and is a public company.
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