Market jitters in February turned into all-out panic in March, the likes of which we rarely see. The S&P 5001 had a draw-down of -33.7% from February 19th to March 23rd before finally starting a rebound on Monday this week (Source: FastTrack).
It’s hard to say how long this rebound will last at this point. Now we are seeing the spike in unemployment that we expected to be the last straw before recession. So are we officially at the beginning of a new recession? Only time will tell. For now our plan is to try to make the most of this updraft while being ready to get back to protection mode quickly when our data dictates.
Considering how bad the stock market got, damage to our portfolios was far less and in some cases minimal by comparison. We are always very open about risk mitigation being our priority in managing money, and times like these are when we can demonstrate it in action. We also take times like these to evaluate what worked and what did not. Investment strategy design continually evolves and improves if we can remain persistent in our efforts to learn from it.
And now for some charts! We believe nothing tells the story of how much fear has been in the market recently quite like the VIX (Volatility Index – sometimes referred as the “fear index”). This month’s chart shows the past 30 years of volatility spikes in the VIX. In that time period, there have only been two spikes this high (circled in red): this past week, and in October/November 2008, during the worst of the financial crisis era.
The bond market has been a completely different kind of crazy during this volatile period. For some reason, during last week’s “excitement,” everything was selling off – the bond market included. I’ve seen a handful of other market commentary from traditional allocators suggesting that bonds go up when stocks go down, but in reality, that isn’t a hard and fast rule and not something that should be counted on so rigidly. Sometimes cash really is king.
And speaking of cash, we wonder if the Federal Reserve might be over-compensating for something? It appears that we’re getting more “QE” than we’ve ever seen before – just like we have been getting over the past decade since the 2008 housing crisis. But we just don’t call it “QE” anymore for some reason. And right on time, Tom McClellan has excellent commentary on “QE” and how it affects the markets.
As you can imagine, we’ve been busy this month between working to protect our clients’ accounts from the market volatility, reviewing our investment strategies, and making sure we are able to handle business continuity should any of us have any health issues. Realizing this is a continuous process, we are currently confident in all of the above.
Finally, next month I’m going to be on a panel of money managers who were able to protect client money during this volatile month and show other advisors how they can do the same. This might be one of the best ways I can give back to this community.
Everyone stay safe and healthy out there and keep washing those hands!
1 The Standard and Poor’s 500 is an unmanaged, capitalization-weighted benchmark that tracks broad-based changes in the U.S. stock market. This index of 500 common stocks is comprised of 400 industrial, 20 transportation, 40 utility, and 40 financial companies representing major U.S. industry sectors. The index is calculated on a total return basis with dividends reinvested and is not available for direct investment.
2 Charts are for informational purposes only and are not intended to be a projection or prediction of current or future performance of any specific product. All financial products have an element of risk and may experience loss. Past performance is not indicative of future results.