Broker Check

First Quarter 2020 Financial Review

April 1, 2020

To begin, we hope you and your family and friends are healthy and doing well.  We are all experiencing changes in our lives as the world adapts to the effects of the COVID-19 pandemic.  We, however, remain available for you.  As always, we will be available here in the office for phone call inquiries and emails.  We are scheduling virtual reviews (Zoom, Join.Me, Facetime, Google Hangouts) and will make available times to conference call with us.


Worst Quarter in the Stock Market since 2008 – The Unanticipated Severity of a Global Pandemic


U.S. stocks closed out their worst quarter since the depths of the financial crisis, a stunning blow for the market that few investors (including me) could have anticipated at the start of the year.  The S&P 500 finished Q1 2020 down 20%—its biggest quarterly decline since 2008.  The Dow Jones Industrial Average fell 23% for the quarter, its worst showing since 1987.  The Nasdaq Composite finished the quarter down 14%.


At our annual Forecast Event in January we looked forward to a promising year based on a fundamentally sound economy and favorable monetary and government policies.  Historically, an election year has been statistically positive for markets.  For now, the optimistic tone we had January is on hold as we all navigate through uncertain times together.  Not even this crisis will deter my long-term view of optimism for our country, our economy, and financial markets.


Where We Have Been?  Rebalancing Works – But Not Against A Pandemic


On February 14th, we rebalanced retirement accounts at market highs by selling equity positions and buying bonds.  In retrospect, this rebalancing proved to be well-timed and effective in protecting portfolios.  Then the coronavirus hit.  What, to many investors, appeared to be an issue that would primarily affect China quickly became a global pandemic.  Many institutional investors (highly leveraged) sold indiscriminately, followed by panicked retail investors who chased short term gains and got caught in the wave of selling and losses.  Our portfolios held up fairly well in the awful market selloff.  Bond positions and allocations helped mitigate some of the declines.  I am reminded that one bad quarter should not impact good long-term returns as part of a long-term sound financial and retirement plan.


Where We Are Now?  The Economy Is On Pause Amid “Social Distancing”


Americans have been advised to shelter at home and avoid nonessential activities and travel.  With millions out of work, the economy is taking a significant hit and is expected to contract by 15-30% in the upcoming quarter.  The bad news will continue until the virus is under control and the economy slowly reopens and recovers.  The uncertainty and negative headlines will be unsettling and scary.  The market will continue to be volatile and unstable.  Then, without notice, or an “all clear” signal during a nightly press conference, the market will look ahead and begin to recover.  We want to be ready and best positioned for that eventual recovery and growth.

Where Do We Go Now?  Positioned for Recovery and Tax-Loss Harvesting


We are working diligently on portfolio positions and allocations.  Our models are currently underweight in equities.  Although we cannot tell if we are at the “market bottom,” I do know we are in the process of getting to it.  To this end, we will be looking very closely at another rebalance to realign client portfolios with investment objectives.

A Case For Optimism: What Happens the Rest of the Year after a Bad Q1?

The Rest of the year, markets are up substantially.


Source: S&P, LPL Financial 4/1/2020


We are also looking at “tax-loss harvesting” – matching all capital gains and losses to find opportunities to reposition for growth and to mitigate future tax burden.  Another opportunity is to consider ROTH conversions now.  Lower values result in lower taxable income and the recovery can then be most beneficial in the ROTH for tax free growth.


Please reach out to me and my team if you have any questions or need any reassurance.  We will get through this together and we will be stronger for it.