Life is unpredictable. The chaotic, steep slide of the market over the last few weeks and underlying fears of the Novel Coronavirus reinforced that undeniable fact. Vacation plans? Out the window. School schedule? Work routine? In flux. Business conferences? That deal in the works? Cancelled. Uncertain. Unpredictable. In the past few weeks I’ve written to our clients several times about the precipitous market decline. This month’s report will be short and to the point. In a nutshell: when life is unpredictable, stick to the plan you made in calmer times.
As February came to a close, the last week of the month brought a five-day losing streak, capping the worst week for stocks since the 2008 Financial Crisis. For the month, the MSCI All Country World Equity Index returned negative 8%. US equities, as measured by the S&P 500 Index, returned negative 8.2%. International developed equities, as measured by the MSCI World-Ex USA Index, returned negative 8.9%. Surprisingly, emerging market equities, as measured by the MSCI Emerging Market Index, lost the least of the major regional indexes, returning negative 5.3%. Global REITS fell about 8.5%. Treasury yields hit record lows, with the 10-year U.S. Treasury Bond closing down at 1.1%. Barclay’s US Government Bond Index returned 2.6% for the period. Treasury inflation protected securities (TIPS) gained 1.4%. Barclay’s municipal bond index returned 1.3% for the month. In the credit markets, Barclay’s US High Yield Corporate Bond Index fell 1.4%. Investment grade triple A credits rallied, returning 1.4%. The Bloomberg Gold Index fell 1.2%. Oil prices slipped to $45 per barrel.
We human beings have a strong desire to understand how and why things happen. It’s no different when the stock market falls. We want an explanation. This time we can point to the expanding Novel Coronavirus and all its potential impacts and uncertainties. Perhaps the market was looking for an excuse for a breather after the longest bull market in history. Maybe underlying economic indicators, not all good, were a contributing factor. Other explanations include forward-looking fears: the prospect of schools, businesses and entire communities being shuttered for an unknown period. Explanations make us believe we can figure out what comes next. That is false.
Stock market declines never feel good. But long-term investors know that stocks are a proxy for capitalism itself, and the long-term outlook has little to do with what’s happening today. Equity investing is how you fight inflation, grow your personal nest egg, and earn a long-term premium. This has been verifiably true for nearly 100 years. Many cycles have shown the wisdom of staying in the game and holding a long-term perspective. For instance, while equities fell 8% to 9% in February, the MSCI All Country World Index is still up over 118% over the past ten years.
The bottom of this market is unknown. Things may look grim for a while, and you may want to run for cover. If you are tempted to react, consider your goals. Big changes in strategy, including large reallocations in your portfolio that expose you to potential losses, only make sense when there have been equally big changes in your life. For most of us, that didn’t happen in February.
If you have questions or concerns, call me. I am here to help.
Cardiff Park Advisors
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