Investment Market Update, Q1 2020

Posted by Michael Aloian on Apr 2, 2020 2:45:27 PM
    

I wanted to write a note to you about the tremendous first quarter market volatility and the 20% S&P 500 Index decline. This “waterfall” decline was the worst since the 2008 Great Recession and was particularly unusual since the market was trading at an all-time high on Feb. 19. The COVID-19 pandemic is an unprecedented event elevating fear and uncertainty, but it is a transitory event for the markets and the U.S. economy. Meanwhile, we hope you please practice social distancing and stay safe.  

The pandemic caused investors to sell equity holdings since corporate revenues and earnings will contract in the short term. Government mandated measures to stop the pandemic from spreading are deterring economic growth globally, but social distancing seems to be the only means of minimizing the contagion. While efforts such as “stay-at-home” orders are mitigating the virus’s spread, the concern is the accelerating unemployment rate. The federal government’s $2-trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act will serve to temporarily provide funds to the unemployed, the healthcare industry and the small business community. There may be even further federal response with more stimulus over the next few weeks.

The credit markets became volatile because lower quality bonds suddenly had no secondary market or liquidity. In response, the Federal Reserve has added non-traditional mortgage backed bonds, corporate bonds and municipal bonds to their ballooning balance sheet. This is to keep default rates for these entities from rising and keep citizens from recessionary conditions. The flat yield curve and low interest rate environment signals a slow or no-growth economy, with short-term deflation in energy prices, materials and real estate.

The equity market will continue to have large daily swings, with the defensive sectors like healthcare, staples, utilities and technology performing the best. The financial, energy, material and industrial sectors have declined the most during this market sell-off. Crude oil prices collapsed to $20 per barrel due to the Russia-Saudi production dispute and reduced demand as global transportation declined.

Since we have never had a pandemic this contagious or lethal in the U.S., the uncertainty and volatility of the markets will continue in the short term. The war against a virus can and will be won since immense efforts to developing a vaccine are under way. The global healthcare system is becoming overwhelmed, but vaccines are being developed and tested and production time will escalate quickly. When the dramatic escalation in the U.S. infection curve begins to slow or “flatten,” the equity market will anticipate a normalizing economy and move higher. With the lowest energy prices and the lowest interest rates the U.S. has had in years, as well as the federal government’s stimulus program, the economy will normalize and accelerate quickly.

The Trust Team is practicing social distancing guidelines and not scheduling face-to-face meetings, but we will look forward to talking to you by phone.

Please stay healthy.

Posted by Michael Aloian

Michael oversees the people and policies of the Trust and Investment Management Services Department and manages the individual investment holdings of Crews Bank & Trust’s Trust clients. His clients include individuals, families, foundations, and institutions throughout the state of Florida.

Michael's education includes:
Bachelor of Arts in Economics, Harvard University, Cambridge, MA, 1982
Investment Portfolio Manager and Research Analyst since 1983
Graduate of the Florida Bankers Association Trust School, University of South Florida, Tampa, FL
Series 65 - Registered Investment Advisor
Series 52 - Municipal Securities Representative

Board member:
Florida Bankers Association, Florida Bankers Educational Foundation
Member, CFA (Chartered Financial Analyst) Institute

Michael serves on the Tampa Bay Committee on Foreign Relations and is a member of the CFA (Chartered Financial Analyst) Institute. He is immediate past-chairman of the Board of Directors for the Historic Bok Tower Gardens in Lake Wales, for which he now serves on the Investment Committee. He is a former president of both the Harvard Club of Central Florida and the Harvard Club of the West Coast of Florida. Michael is a 2005 Graduate of Leadership Tampa Bay.

Topics: Market Update, Investment, COVID-19