Let’s get right to it and try to be real here. This writing is not meant to be an optimistic piece of feel good marketing. It also isn’t going to attempt to call a market bottom or a recovery that takes the shape of a V, W, U, L or any other letter. I’ll bet that got your attention!! (and I hope it was as refreshing to read as it was to write!) Our hope is, however, that you will be able to put some reason as to why the market is acting the way it is, gauge the levels of concern, and maybe, just maybe, gain some hope.

We are certainly living and investing in a unique time… once in a lifetime, we hope. Emotions are running high… virus cases, global pandemic, state shutdowns, economic contraction, bear market, mandatory work from home, and on and on. There are too many negative headlines to summarize here, and that is part of this message. The stock market is discounting a lot of negative news! It is well-recognized that corporate earnings in 2020 are expected to be lower than in 2019. It is also well-known that a recession may be likely, unemployment is rising, and virus cases have not yet peaked. In my opinion, it cannot be overstated that the stock and bond markets do not like uncertainty, yet that is about all we have to consider today. It is still too soon to put accurate numbers on the severity of these headlines, but expectations are quite low, and that, ironically, can be considered a minor positive. Also positive is that the Fed is indicating that it is willing financially to do whatever is needed and reasonable to support our markets’ liquidity and financial system.

During times like these, we must try to separate our brain from our heart - not an easy task to accomplish. Our heart may say run for safety, sell all risky assets (depends on your definition), sit on the sidelines, and wait for the all-clear signal. This is a pretty good approach if you want to buy high and sell low and then most likely re-enter with poor timing. And day to day market changes that we’ve experienced the last few weeks, in my opinion, attempt to solidify that approach as a good strategy. I think we all know that it is not. 

As conflicting as it may be, our brain should be saying to try to remain calm, be forward looking (years, not months), diversify, allocate appropriate to our risk tolerance (which has probably gotten a reality check), and have the courage to ride out the volatility. Easier said than done, but doing it is possible and encouraged. There have been numerous instances in the past where it’s been difficult to see through the smoke (see charts below), and the range of severity has been wide.