At SevenBridge Financial Group, we are continually monitoring the investment markets and evaluating asset prices in order to make recommendations and manage our clients’ accounts diligently. Recently, the entire world is analyzing and reacting to a 24-7 Coronavirus news cycle. This attention is warranted given the worldwide impact of the outbreak, but the overall long-term effects are unknown. We are helping our clients by focusing on their long-term plan, updating assumptions for current events, and making recommendations from many aspects of their financial plan, including budgeting/saving, portfolio rebalancing, and retirement readiness analyses.
The Coronavirus pandemic has caused the U.S. stock market to decline 34.6% from the highs in February through the market close on March 20, 2020. For this analysis, we have used the Schwab US Broad Market ETF (SCHB), an exchange-traded index fund that mirrors the price and yield of the Dow Jones U.S. Broad Market Index. This index uses the available pricing of the largest 2,500 publicly traded U.S. companies.
The equity markets are known to financial planners and investment pros as leading economic indicators. This means that investors trading securities are generally forward-looking to compare the expected future value of a security to the current value to determine whether to purchase shares at the current price. This causes equity markets to react strongly and swiftly with changing environments and investment assumptions and stocks “price in” the impact of corporate earnings estimates changes. In March 2020, these economic assumptions are evolving to include a “baseline” case in which the U.S. economy experiences a decline or recessionary period. These declines occur periodically and are an inherent part of long-term investing. Historically, just as the equity market declines signal disruptions in the economy before economic data is available to confirm, equity prices tend to bottom and begin to rise ahead of and, in some cases, long before other indicators of recovery are present.
So, the question is, when will markets turnaround? And when will the Coronavirus pandemic end its attack on global health and the economy?
The answers to those questions are unknown, but what we can predict is that the equity markets will continue to be a leading economic indicator. As an example, looking back at the financial credit crisis in 2008 and 2009, the S&P 500 bank stock index bottomed in January 2009, while bank failures did not plateau until 2014 with the highest level of bank failures recorded in 2009 through 2011. This showed that prudent investors in those companies decided to purchase shares long before bank failures slowed to pre-financial crisis levels. In 2020, markets will most likely again lead the way in digesting data and projecting the future earnings of companies around the world to support their decision to buy, hold, or sell stocks.
Our clients at SevenBridge are long-term investors. While each client is unique and has a financial and investment plan that is customized to their needs, we are reviewing all investment accounts looking for specific opportunities to rebalance, harvest tax losses, or at the very least, increase the quality of the portfolio. During times of market uncertainty and correction, it is common for many high-quality companies to be marked down to levels equal to those companies of much lesser quality. Our goal during these periods of extreme volatility is to identify opportunities to add superior companies to our client’s portfolio at excellent prices.
Additionally, we are helping our clients make effective decisions about holding tight or executing on adjustments to their plan. For families that have been accumulating cash over the past few years, it is an excellent time to talk about a long-term investment plan and how proper asset allocation based on risk tolerance can help you achieve your goals.
If you have questions on your financial plan or investment management strategy, give us a call at 717-775-8662 or reach our firm’s inbox at firstname.lastname@example.org.
SevenBridge Financial Group and its representatives are in compliance with the current filing requirements imposed upon SEC-registered investment advisors by those states in which SevenBridge Financial Group maintains clients. The views expressed in the referenced materials are subject to change based on market and other conditions. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. The information provided herein does not constitute investment advice and is not a solicitation to buy or sell securities.