Through the end of March in a pretty remarkable turn of trends, the domestic equity market rebounded 15% over the course of six trading days after the Federal Reserve let loose a rainbow of market support mechanisms and the U.S. Congress passed legislation worth more than $2 trillion in budgeted relief for U.S. businesses and workers. With peak-COVID in the U.S. likely still in the future, and with the macroeconomic impact still only very vaguely estimable, it’s easy to think up reasons to believe the rebound has gotten a bit ahead of the fundamentals. Even so, with the market still well off its February peak, we think history will show that patience amidst heightened volatility was rewarded over time.

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In the following video, Mark seeks to provide additional perspective regarding recent market volatility. Importantly, this video is not presented as an investment recommendation. The approach described may not be right for everyone. No one watching or listening to this video should take our comments as advice specific to or appropriate for their individual situation. […]

After the day before turning in its fifth-worst day in history—its worst single-day performance in more than three decades—on Friday the S&P 500 turned around to record its tenth-best daily return in history. That it ended on a strongly positive note may have been little relief for the anxious, as the index remains down just under 20% from its February record peak. The two-way volatility we saw last week offered a strong reminder that remaining invested during times of market tumult generally has proved the better course for those with reasonably long investment time horizons.

Download PDF: 20200315 SAM Market Update

As markets roil, it’s increasingly evident that the eventual depth of this downturn will depend on the breadth and duration of the dual contagions now spreading across the globe: the coronavirus outbreak and the oil price war. With the actual disease threatening human life and macroeconomic growth, potential duress in the energy sector threatens to jump from oil companies into the financial sector and beyond. Headlong into the market plunge, we sought some perspective—and even some reassurance—from history. Though we find a wide range of durations for past market drawdowns, just as obvious from the data is the fact that, in its having reached another peak just a few weeks ago, the equity market eventually recovered from every prior drawdown.

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Investors needn’t another layer of uncertainty, but received one anyway over the weekend after a meeting of members of the Organization of the Petroleum Exporting Countries (OPEC) and its partner countries (together OPEC+) collapsed. Saudi Arabia slashed prices and matched threats from Russia to increase production. Meantime, COVID-19 cases surged in the U.S. and in Europe, with sovereign and local governments implementing increasingly strict measures to contain the spread. With global growth already suffering from coronavirus pressures, contagion took on another meaning as investors began to worry about an oil sector-driven credit crisis. Risk markets tanked around the world as U.S. Treasuries soaked up that anxiety. When we wrote in last month’s commentary that we always should be expecting the unexpected, we didn’t think we’d find so soon such a stark example.

Download PDF: 20200309 SAM Market Update

It would seem that investors finally began to focus on the near-to-medium-term potential impact of the COVID-19 virus. Or, was it that the Democratic Party debates were stirring fears of an increasingly tumultuous progression to the 2020 Presidential Election? We might best assume both, even as we respond to the recent dramatic decline in the equity markets by staying the course. That is, to the extent that we always should expect the unexpected as part of the investment process, the longer-term plans we have set before such events likely need not be altered.

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We closed January’s commentary with the thought that the vagaries of market returns we see in history are likely to persist in the future. While we cannot foresee what shall become of the market over the longer-term future, we can plan to be adaptable to circumstances in the interim. In particular as we begin to withdraw more than we save in our investment portfolios, we may need to balance the longevity of our savings against levels of spending. One also may wish to de-risk portfolios through time as sensitivity to market volatility rises. An advisor can help clients establish and implement plans that take into consideration such details and, over time, assist in digesting new information, altering existing plans where necessary.

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One might suggest any hesitancy to be exposed to investment risk at the end of the third quarter proved misplaced, as returns for Q4 2019 show green most places one looks. Then again, one might in response state that misplaced is a poor choice of words, with premature perhaps a better qualifier as relevant risks remain reasonably elevated as we head into 2020. Such is the natural push/pull of acknowledging the past and gauging proper expectations for the future. Our perspective? As always, there are reasons to be both cautious and optimistic. Depending, of course, on individual preference for each.

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Last month, we discussed the highly variable magnitude of investment outcomes over longer periods of time. The focus was on the accumulation phase of our investment lifetimes, or those years when we tend to be saving much more than we are spending. Markets may prove just as variable when we begin to spend our invested savings, while the fact that we have begun to subtract from invested monies adds a further complication to the math. This month, we want to focus on that math, hoping to provide a bit more perspective for discussions related to the longevity of investment portfolios.

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