April 2020 Market Update
We hope this letter finds you and your family safe and healthy as we all continue to navigate this unprecedented time. The past few months have introduced us to the new experiences of closed businesses, self- quarantine and social distancing in an attempt to flatten the curve of coronavirus infections. This has led to a dramatic change in our economy, from one of historic strength with sustained growth and low unemployment to one trying to find its footing as much of the US (and global) economy has been temporarily closed.
Many in the financial world are trying to make sense of everything that has happened in such a short period of time to impact the markets. The world slipped into a forced recession with 30 million Americans unemployed, the price of US Treasuries dropped to an all-time low (near 0% yield), and, while demand for oil dropped precipitously, Russia and Saudi Arabia increased production, creating an unprecedented drop in the price of oil nearly overnight. On the flip side, the US Federal Reserve quickly provided monetary stimulus for individuals and small businesses as well as liquidity into the markets which calmed the volatility.
The initial market reaction in March was a significant (30%+) decline in most of the market indices. April saw a significant rebound with the indexes now down between 2 and 21% since the initial selloff. So where should the markets be? We believe the US and global economies will take time to recover as the pandemic causes uncertainty until a vaccine is widely available and/or there is a robust testing capability to understand who in society is infected and at risk of serious complications. As such, we believe the market has come back quickly, probably too quickly, compared to what we see as a slow and arduous recovery. We follow a couple indicators, namely the Shiller P/E ratio and the “Buffett Indicator” which both suggest the market is overvalued compared to historical norms. As a result, we recommend a higher percentage in cash, favor high-quality companies with strong balance sheets, and add in smaller stocks and sectors when we think they are significantly undervalued.
If you have any questions, please feel free to reach out to us. At least one of us is generally in the office to answer your questions. And while this is a frustrating time in many ways, we hope you enjoy the rare chance to enjoy family dinners, game nights and walks.
While we aren’t meeting our clients in person right now, we are available to talk on the phone anytime, ready to text whenever you’d like, and excited to setup a Zoom video conference with you if you really want to see our long hair!
Brian Kellett, brian@kellettschaffner.com. Phone 513-312-6067
Jared Kline, jared@kellettschaffner.com. Phone 513-768-2238 (call or text)
Nick Gemmel, nick@kellettschaffner.com
You are also welcome to call the office at any time and we will return your call as soon as possible. 513-554-1472.
