April 08, 2020
I want to start off this letter by saying thank you. Thank you for the continued trust you place in our practice. And thank you for sticking with your investment plan, even as the attention-seeking pundits in the press are stoking the flames of panic.
Stock Market Correction: A One-Two Punch from Coronavirus and Oil
As you’ve followed the news, you understand that March of 2020 was historically bad for stock markets. Volatility is here and likely to be with us for a while. But, as I described in a previous message, sticking with your plan is vitally important. That’s because market timing, as a strategy, doesn’t work. But with that said, if your circumstances have changed, such as lost employment or health challenges, that may warrant a shift in strategies. Please contact our office if that’s the case.
In the next few days, you will receive your quarterly statements. It’s likely that you will see a drop in value, perhaps significant. To better understand what’s going on in our markets, I’ll touch on the concepts of “bulls and bears.” A bull market is one that grows by 20% or more. A bear market is one that declines by 20% or more. In an average cycle, it usually takes about 2 years for the stock market to transition from bull, to a bear, and back again. So, just how volatile was the stock market in the month of March? Our stock market just completed that very same cycle in the short span of 17 days! With all the bad news from the stock market, one thing that gets overlooked is the glimmer of hope that the markets recently provided: The week of March 23rd was the best performing week of the stock market since 1938. One great week, however, is little consolation when looking at your statements. But it does mean that the patient (our stock market) does have a heartbeat.
The rapid news of Coronavirus resulted in an unprecedented economic shutdown in the history of our country. Internationally, we froze travel, including China and Europe. And soon afterwards, most states shut down schools and non-essential businesses and activities. Most every segment of the economy has been impacted one way or another. Through these shocking developments, the one constant has been the “unknowable.” In other words, we all have lots of questions, but few answers. And as you’ve likely heard me say in previous meetings, the stock market doesn’t react well to the unknowable. Bad news, for example, such as higher unemployment numbers, is something the market can absorb. But the fast and harsh stoppage of everyday life, led to a brutally historic decline in the stock market.
The One-Two Punch
To better paint a picture, let’s call Coronavirus the “punch to the gut.” Metaphorically speaking, while the market was slumped over after that punch to the gut, it took an uppercut to the chin in the form of collapsing oil prices. Oil price collapse was the result of two distinct criteria: one that was organic and one that was artificial. The organic collapse occurred because the world shut down. It’s just a matter of supply and demand. Almost overnight, the world demand for oil drastically declined. The artificial collapse, however, was even more damaging. I’ll take a moment to explain. Back in the 1990s, for example, OPEC came to be known as an obscene four-letter word in American vocabulary. That’s because OPEC would frequently cut oil production to artificially raise the price of oil, and consequently, our price of gasoline at the pump.
Now, back to the present. OPEC held an emergency meeting as Coronavirus began shutting down world economies. Most OPEC leaders wanted to cut oil production, in order to stabilize the price of oil. Although in the past, this was something we came to despise, this was one time when we needed OPEC to cut production. But Russia balked. Russia vetoed OPEC from cutting oil production. Incensed by Russia’s defiance, on March 10th, Saudi Arabia increased production by 300,000 barrels per day. That decision was disastrous to the price of oil. And the stock market, already reeling from Coronavirus news, plunged even deeper.
But just when it seemed that the news was going from bad to worse, we got a reprieve. On April 2nd, President Trump announced a deal (in principal) in which Russia and Saudi Arabia agreed to significant oil production cuts. On that news, the price of oil surged 24% in one day – the best single day increase in history. The stock market followed suit. This is just another example of how crazy and bizarre our markets are right now. If you are looking for a bit of a barometer, watch the price of gas at the pump. This may sound strange, but I’m cheering for higher gas prices. It may act as a trailing economic indicator, letting us know that our economy is roaring back to life.
State of Calder & Colegrove Investment Group
Everyone on our team, including myself, has been touched by the messages of support and the goodwill wishes that many of you have expressed. And on that note, I will take a moment to detail the state of our practice. We are fully operational, fully staffed, and fully employed. Due to the fact that we have been designated as an essential service, we continue to operate out of our office in Suwanee. However, on Fridays, we have transitioned each team member to work from home. We made the decision to transition to our homes on Fridays in order to put our business continuity plan to the test. That way, if the fluid nature of our situation warrants team members to work at home full-time, we will be ready.
I’m Available to Talk
Due to the trials of the Coronavirus pandemic and the rapid decline of the stock market, I am 100% available to talk with you. Since we can’t hold in-office appointments right now, that’s given me more time to talk on the phone. When I spend time with you on the phone, I get energized. You have inspired me through your positive long-term outlook for our markets and economy. You have humbled me with your patience. You’ve reassured me as much as I’ve reassured you. And I thank you.
Help us Transition from Defense to Offense!
The steps we have taken for our practice have been necessary, yet defensive in nature. Due to social distancing, we were forced to suspend in-office appointments; we cancelled our annual meeting; we moved Friday workdays to each of our homes. And we even paused retirement plan rollovers, because I worried, that the time it took to move the money, might result in missed opportunity – a concern that was realized with the best week in the stock market since 1938 (week of March 23rd).
But now, I’m ready to go on offense. And I need your help.
Chances are good, that you have a friend or family member who is asking questions about their investments. Maybe you know someone who is getting close to retirement and is concerned about how these market declines will impact their ability to retire. Or perhaps you know someone younger, who has been putting off their investment planning. So, I’ll make this short and sweet:
In America, when the going gets tough, the tough get going. And frankly, I am ready to get going but I need your help to do so. I ask that you refer our practice to your close family members and best friends. Your family and friends have questions about what’s happening in the market today. And I want to help. I ask that you help us go on offense and refer new prospective clients to our practice. We have the capacity to take on new clients. We have the time. And I have the drive, determination and desire to help more clients just like you.
Referring us is easy.
Bold Predictions of Economic Prosperity
There is so much gloom and doom in the news these days. And some of it, is understandable, because this is a scary time. But I have confidence, that the finest minds in medicine will solve this issue. They just need time. And we’ve given them time by locking down the country. Let there be no doubt that the finest scientists, physicians, and equipment exists in the United States. And the leadership we have seen from President Trump’s team has been fantastic. Regardless if you are a fan of the President or not, he closed the country to travel with China and Europe amid cries of racism and nationalism. He took the reigns of leadership on the heals of a partisan impeachment proceeding. I agree that his twitter rants can be hard to swallow, and sometimes, just plain mean, but President Trump has risen to the occasion. He has led our response, opened up the purse strings of the federal government, and moved mountains to help states and hospitals. He even invoked the war-time powers of Defense Production Act to force the few non-patriotic American companies to transition to the creation and local distribution, of needed medical supplies.
So, what’s next?
None of us know when we will be able to come out of our homes. But that time will come. Our leaders are hard at work, finding a way to separate the healthy from the sick. That’s the key to it all, as I’m sure you know. Once we are able to complete that task, we can open up our economy for business. And here’s where I will make a bold prediction. There is so much “pent up” spending power in the country right now. Once Americans all go back to work, I believe that retail businesses, including shopping centers and restaurants, are going to see a boom the likes of post-World War II America. There will be so much buying going on, that shelves may empty for reasons other than a run on toilet paper. And the markets…I think they will be due for an increase in historic proportions. The Dow Jones Industrial Average, for example, was sitting at about 29,000 before this invisible enemy attacked the United States. I believe that seeing the Dow Jones pass through 40,000 is not out of the question, especially if President Trump is re-elected. Of course, even if this occurs, there are wounds to address, both the tragic loss of life, and also, the financial burdens of unprecedented U.S. Government deficit spending. But our country is due for an economic boom and a joyous celebration like no other.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
Economic forecasts set forth may not develop as predicted.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
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