We realize that some of you may be concerned about recent fluctuations in the financial markets. This update seeks to address your concern and to offer a helpful reminder of our value-driven, sustainable investment philosophy.
We recently experienced the quickest correction in the history of financial markets with the Dow Jones Industrial Average plunging more than 13% in a week, or over 3,500 points, snapping back up over 1,200, and dropping close to another 1,000 points less than a week ago. The market reacted again this morning on the opening bell indicating a continued pattern of volatility. Our stable perspective suggests the critical need to step back and to assess both the underlying causes of the severe volatility and the foreseeable discounts in the market. We are working closely with our investment advisors to analyze the probable future investment environment during the next couple of quarters, the balance of 2020, and the longer term.
Since the spread of the Covid-19 coronavirus outside of China, concerns over its effect on global supply chains have accelerated. Companies are guiding cautiously due to production shutdowns and restrictions on work and global travel. The longer factories remain idle in China and elsewhere, the greater the likelihood of product shortages in the coming weeks in other countries. U.S. equities have now given up all of their 2020 gains in a matter of days. An expected return to higher economic growth rates for this year clearly has been delayed as a result of the Covid-19 outbreak.
Considering these challenges, the Federal Reserve showed that it is serious about supporting markets and the economy. They delivered an inter-meeting cut of 50bp, bringing rates to a range of 1.00% to 1.25%. This emergency action is the first one taken since the heart of the financial crisis in October, 2008. The cut was followed by a press conference from Federal Reserve Chair Powell. He noted that the Federal Reserve will employ tools and act appropriately depending on the flow of events. In other words, additional cuts are possible. Chairman Powell plainly stated that the response to COVID-19 is “multi-faceted,” including action from the healthcare community and other public and private sectors. The Federal Reserve has the tools to act swiftly and curb fear in markets and the economy.
This COVID-19 uncertainty is not normal. The current concerns seem less controllable than other previously well-known outbreaks of other viruses. In the coming weeks, more transparent data will allow for more effective analysis of investor sentiment, economic growth, and policy response. These factors will inform our path forward. During this highly uncertain and fluid environment, we commit to staying measured and to not overreacting to the daily news. We urge all of us to remember periods of similar stress and the ways in which our value-aligned, stable approach benefitted long-term investors. Recent market developments underscore the importance of diversification. Our portfolio continues to offer a broad mixture of socially responsible equities across asset classes. This proactive diversity mitigates periods of higher-than-expected volatility. Bonds, in particular, have produced strong, positive returns during this period. They help to cushion the downside of equities. As a result, Balanced Fund investors currently have experienced less than half of the negative returns of the equity indexes.
The capital markets almost certainly will remain in a volatile saw-tooth pattern for the short-term. However, we adhere to a long-term investment philosophy. We remain steadfast to our value-aligned investment strategy. Likewise, we remain nimble to take advantage of opportunities to rebalance the portfolio in times of stress. Long-term positives are possible even amid this volatility. The U.S. economy should remain strong on a relative basis. Consumer confidence levels remain elevated. The labor market is strong. The housing sector is improving. All of these factors lower the chance of a U.S.-led global recession.
We will continue to monitor the situation closely and will communicate any updates to you in a timely manner. As always, please feel free to reach out to me or the Foundation staff if you have questions or if we can assist in your stewardship
