Hello friends, Social distancing affords a person a lot of time to reflect on life, doesn’t it? This time spent at home with family has been a great blessing. Life’s pace has slowed down, and that’s the solace I didn’t know I needed. I hope you’ve found your own moments of solace amidst this abnormal reality, as well.
We’ve covered the term “bear market” in past newsletters. As a refresher, a bear market is when an index (e.g.- S&P 500 Index) closes at least 20% down from its previous highest point. (See the enclosed chart for a better visual on its meaning.) Bear markets always occur for different reasons. In 2008–2009, one occurred out of the recklessness of many of our nation’s largest financial institutions. The one prior was the result of the 9/11 terrorist event. This time, it is occurring due to an unprecedented worldwide health pandemic. The common theme in every bear market is that they are often impossible to predict. This one has been especially brutal, as stock price declines have occurred so rapidly.
Below, I’ve listed the quarterly returns of each of the major indices. Unfortunately, it doesn’t even tell the full story. The stock market advanced in the first eight weeks of the quarter, reaching all-time market highs, before crashing in the first three weeks of March and then staging a modest rally at the end of the month. The numbers below tell the story of the quarter’s market performance.At Future Bright, we don’t sit on our hands during these challenging times. We’ll never call a market top or a market bottom. Nonetheless, there are market risk mitigation methods that can be exercised within the extremes of market swings, and we are selectively active in our asset management when we experience this type of market volatility. Every decision is data-driven and rooted in our experience in navigating troubled markets.
As we look ahead into next quarter, economic recession is almost a certainty since this virus has forced the shutdown of nearly all economic activity around the world. However, markets often price in theoutcomes of adverse economic events months before they transpire. What matters most to us is the duration of the economic shutdown. If it lasts longer than officials are predicting, we may experience further pricing pressure in financial markets. However, if we turn a corner in April in the fight against this pandemic, a case could be made for the market to stage a strong recovery. The federal government’s relief package should be helpful in the interim. My hope is that we will come out of this crisis with a wave of consumer behavior that will induce an even stronger economy than the one we left behind in February.
These are challenging times. Hang in there. Life will get better for all.