Heritage Wealth Architects Acumen Bulletin April 2020

We’ve seen a lot in the last six or so weeks, most of it from the comfort (confines) of our homes.  In this Acumen, we will go through what we’ve seen thus far in investment markets answer some of the questions we’ve been hearing from clients, strategic partners and posing to ourselves along the way. 

As news of the virus and its spread developed, there was a rush for the exits in nearly every investment market and asset class, excepting cash and a few others.  The S&P 500 lost about 34% from its all-time highs at record speed in only about a 4-week stretch of time.  In the time since the initial drop to today, extraordinary measures have been taken by federal, state and even local governments to curtail the expected economic ramifications of keeping as many people as possible at home and decreasing the risk of further spiking cases of the virus. 

Distancing measures along with stay at home orders seem to be doing their part in slowing the reported fatalities and lending some relief to overwhelmed and underequipped hospitals.  This all seems to be giving warm and fuzzy feelings to the market of late as the market has gained back over half of what it lost in the initial drop.

First quarter earnings season began on Monday and we’ve just learned this morning that another 5.2 million people filed for unemployment claims last week, which is probably below the amount of people actually attempting to file, due to system backlogs.  Of course, we don’t have a crystal ball, but as actual data come to light on just how few people are able to work and how shelter in place orders are impacting corporate earnings so far and in the future, it would not surprise to see the equity markets take a bit of a pause, and perhaps, retrace back to where they came from in mid-March.

Here are some frequently asked questions we’ve been hearing throughout the last several weeks we thought we’d pass along our responses in case you had not yet asked us yet directly.

Q.  What have you done to portfolios since stocks began falling?

A.  The initial drop in equity, and even bond prices came fast and furious.  Toward the end of March, we noticed a bit of a relief rally forming, so took the opportunity to trim from some of our more volatile positions, loading up on “dry powder” to deploy over the coming months.

Q.  Why is the market up so significantly since its lows and did we miss out on a chance to buy?

A.  Admittedly, the 25% or so jump from the March low point has been a bit confounding. Last week, when 6.6 million (22 million have now sought jobless claims in the past month) new unemployment claims were reported, the market had its best week since 1938.  On the day the International Monetary Fund (IMF) projected the worst economic downturn since the Great Depression, stocks closed up nearly 4%.  We’re not in what I’d consider a normally functioning market.  That all said, we’ve seen similar market action before in previous recessions, and while history doesn’t always repeat itself, it often rhymes.  In past recessions, including 2008 and 2001, the market experienced an initial drop, followed by a relief rally, only to retest and/or break through the lows that were previously set.   

Q.  What do you intend to do to portfolios going forward?

A.  Practice patience.  We intend to rebalance accounts utilizing proceeds from fixed income positions that have held up better to buy equities at a discount, when it’s deemed prudent.  In addition, as mentioned, in many of our client portfolios we implemented a strategy to build cash to be deployed over the next weeks and months as opportunities present themselves.  We opted to insulate a portion of assets from further immediate drops and set ourselves up to capitalize on opportunities we think we might see down the pike.

As always, we hope you’re doing well and managing through this challenging time.  If you have a question or would like a check in with us, please let us know!  Drop us a line or give us a call.

Thank you from all of us at Heritage Wealth Architects.

We appreciate feedback from our clients and friends.  Is there anything you’d like to know?  Email us at info@heritagewealtharchitects.com or give us a call at 651-289-6444 and we’ll see to it.

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