Special update: COVID-19 and the financial markets

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”   – Warren Buffet

First and foremost, we hope you and your family are safe and healthy, mentally and physically as we all navigate these unprecedented times together.  Throughout the past several weeks, we have been reminded of the importance of preparing for unexpected events that can occur with little notice to disrupt our world.

It’s impossible to predict the short-term direction of how the coronavirus disease, COVID-19, will impact our lives and the markets. However, our nearly 40 years of first-hand perspective through many disruptive events helps us navigate these challenging times on your behalf. We’ve advised and managed client portfolios through events including:

As such, we fully appreciate the anxiety that this current set of circumstances has created. How could it not, when both our health and wealth feel threatened?

Now that most of us are confined primarily to our homes consuming a relentless diet of sensationalized dire predictions via our televisions, computers, phones, tablets, and other electronic devices, it is understandable emotions are high.

For many, especially those with limited experience and perspective, basic human instinct dominates and causes our fight or flight mechanisms to drive our emotions. However, history tells us that it is critical that we don’t allow emotion to drive short-term decision-making and derail prudent long-term planning.

After an extended bull market of over 10 years, we see again that significant market corrections can be triggered by various factors ─ and they are often unpredictable. It is only natural to feel like short-term action is necessary to avoid current danger.

Portfolios built for challenging times

Fortunately, we have built defensive strategies into our clients’ portfolios to help weather the storm of turbulent markets. Certain asset classes, by their nature, will react more sharply during highly volatile times, while others can provide stability for a more defensive stance.

Our portfolios have a stable fixed income component, calibrated to each client’s individual circumstances, that is designed to provide for cash flow needs during prolonged periods of volatility in equities. This mitigates the need to sell stocks at depressed prices. Further, when the situation dictates, we rebalance the portfolio to maintain your allocation. If your situation warrants, we may work with you to reevaluate your allocation between fixed and equity investments. With depressed equity share prices, such a reallocation can accelerate longer-term portfolio gains and speed the recovery. These events demonstrate the importance of having a detailed financial plan to provide clarity and visibility allowing for informed decision making each step of the way. This is not limited to investment decisions, but includes investments, tax, mortgage refinancing, and all other aspects of your plan.

What to expect going forward

The COVID-19 virus and the projected economic disruption have been largely expressed in the stock market, interest rates, and commodity prices such as oil. We acknowledge there will be significant societal and economic distress in the short term. However, with the mass closings, shelter-in-place, and social distancing implemented, the risks of the virus spreading out of control will likely be significantly reduced. Time will tell. We are pleased that our government leaders are finally engaged in building a major fiscal response to calm fears, stabilize sentiment and reduce business risks.

The Federal Reserve (Fed) has gone into action dropping the overnight funds rate by a full percentage point to zero, pumping massive reserves into short-term bank funding, and expanding the types of securities they purchase from financial institutions. The situation is fast moving. We are likely to have ongoing liquidity injections from the Fed until things are stabilized.

Rather than guess about the trajectory of events over the near term, expect things to be fluid and changing frequently. In the end though, the virus will be contained, financial markets will stabilize, and life and consumer demand will eventually get back to normal.

Few things are more predictable than U.S. consumer’s inclination to spend. Shelter-in-place will only last for so long.   As habits change, some companies will suffer. Firms like Amazon and Kroger have benefit from these changes. Consumers will not shut down; they will just change their spending behavior. When things stabilize, the stock market will respond positively as the “end of time” narrative subsides. The response to a less dire and improving outlook will likely be swift and potentially breathtaking. The markets tend to be forward looking and typically respond long before economic data reflects the change.

Looking at 1987 as a reference point

While no two market disruptions are the same, our experience leads us to believe the best parallel to this market would be the 1987 market crash in terms of depth and speed.

As bad as the last several weeks have been, many can recall the terror of Black Monday with a 23% one-day drop in the S&P 500 on October 19, 1987. This would have been the equivalent of roughly 6,700 Dow points on February 5, 2020. Headlines of a global financial meltdown appeared everywhere. The markets continued vacillating over the next 8 weeks with the S&P 500 moving up as much as 15% before hitting the low on December 4, 1987, just below the Black Monday low. As the fears of the worst-case scenario abated, the S&P 500 rose more than 60% by end of 1989. We hope this provides a reference point with which to anchor during this current circumstance.

Actions we are taking on your behalf

We are continuously monitoring events as they unfold and looking for opportunities to prudently rebalance and reallocate portfolios. This allows us to capitalize on the market volatility and tax-loss harvesting that will provide ongoing benefit as the markets recover.

We look at each client’s situation on a case-by-case basis. All of our actions have been and will be in the context of your financial plan. For those with mortgage loan balances, we are tracking your rates versus current rates to identify opportunities to refinance and lock in permanent savings.

Bottom line

Despite the legitimate worries about the current circumstances, we encourage you to keep the following in mind:

In January and early February, everything seemed wonderful, consumer confidence was at record levels with markets reaching all-time highs and it turned out to be the worst time to buy stocks. Now it seems as bad as it has been in decades. The reality lies somewhere in the middle. Stay focused, depend on your long-term plans, and be opportunistic as others panic.

Prepared to continue to serve you

Our firm has invested heavily in technology and infrastructure over the past several years and we test our disaster preparedness plan on an ongoing basis. As such, we want to assure you that we are prepared for any business operating contingencies that may arise. All of our associates are working remotely without any loss of service. The only interruption we anticipate is rescheduling any in-person meetings in order to protect the health and wellness of our clients and team.

We encourage you to remain calm and confident. While the current situation is unsettling, your portfolio is designed to withstand periodic volatility. We remain committed to our disciplined process and serving you. We encourage you to reach out to us directly at any time.

We wish you and your family continued good health. Thank you for your continued confidence in our services. 



For informational purposes only. Not intended as legal or investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000.

Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.