Investment Update: March 9, 2020 "Panic is Not a Strategy"
There is an old saying in the markets that says “Panic is not a strategy”. This has probably never been so true as today.
We at Affinity Capital have taken measured steps in the last thirty days to position our portfolios for this market weakness. However, we do not want to be out of position for a market recovery. Not if, but when, it occurs. We have again included our past market comments for your reference and would encourage you to see the below e-mail string for reference.
From our February 28th Investment Update: “As recently as the fourth quarter of 2018 which was the worst December for the markets since the Great Depression, the Dow dropped over 5,000 points, almost 20% of its value. Within seven months it had reached new highs again. As mentioned above, the market decline below our target of 26,900 creates a break in the short-term trend and a mid-term decline in market direction. Our next target is 24,700 and our bottom target is in the area of 23,550. This would represent a 20% decline from the market high earlier in February. We do emphasize that our “targets” are simply research points that if attained will provide additional information on market sentiment.”
The Dow closed the day today at 23,911 and posted a low of 23,706 intraday. This means we are close to our target area noted above.
We rebalanced our portfolios last week and we did it again today, close to the lows of the markets. We will continue to rebalance the portfolios as market indicators indicate.
Our expectation is that traders will fight to hold the area of 23,550 with a level of 21,700 being the next area of panic selling. Both levels provide an opportunity to rebalance portfolios and enter the market.
What happened today?
Three issues collided today to alarm the markets: Coronavirus fears, oil prices and treasury yields.
- The markets are getting ahead of the learning curve as to the economic impact of Coronavirus, obviously pricing in worse case scenarios. The Coronavirus continues to spread worldwide including the United States and while we cannot minimize the impact of a pandemic, we have not yet approached a peak in the outbreak. As we have mentioned many times in the past, the market is more often worried about uncertainty that actual bad news.
- Today, a catalyst for the stock market downturn has been a sell-off in the oil markets sending the price of oil down 25% to $30.95 per barrel when Russia walked out on talks with Saudi Arabia regarding a new agreement on oil pricing and production cuts. The old agreement expires on April 1st. Saudi Arabia has announced they will cut prices and increase output while Russia will also increase output and this in turn has pressured an oil market that is already over-supplied.
- This type of news in the oil markets involving re-negotiating agreements by itself is not unusual other than the fact that both Russia and Saudi Arabia have the most to lose. We would hope for some semblance of rationality in renewed negotiations before April 1st . For now, it is a serious issue to add further alarm to markets.
- Treasury Yields are the interests rates paid by the government when an investor buys a treasury bond. When the stock markets are nervous, investors look for “safe-havens” and United States Treasury Bonds are considered one of the safest investments. The 10 year Treasury is currently yielding 0.74% - an historic low. While low interest rates are generally good, abnormally low rates are not.
As mentioned above, we rebalanced our portfolios today, close to the lows of the markets, and will continue to rebalance as markets dictate.
We are long-term investors and therefore encourage you to take a break from play by play cable television whose primary goal is to heighten emotions and sell advertising. Of course we encourage you to stay informed but also maintain a long-term outlook. History is full of periods of crisis as well as recovery. This too shall pass.
We encourage you to call anytime to discuss the markets and your portfolios. Thank you for the opportunity to serve you.