This was another tough week for the markets. The S+P lost about 15% and the Dow lost about 17%. The ten year treasury was little changed over the week at 0.94%.
The fiscal stimulus bill that we were hoping for this week has still not materialized. There have been many promises, but no finished product. The virus has continued to spread and most asset classes fell this week as people around the world rushed to cash. In addition to stocks, bonds also fell as people feared the Government would allow a credit freeze to occur. That worry was alleviated somewhat by the Fed continuing to pump money into the capital markets to make sure there were not problems such as we faced in 2008. Central banks around the world acted to prop up their economies and stimulus is flowing like water.
Our hope for the weekend is that we get a fiscal stimulus package worth over $1 Trillion to cover the next few weeks that authorizes direct payments to the many Americans who do not have the financial ability to pay their April bills. Monday, we hope to see a bit of a rebound in the stock market and the bond market due to that. Our plan for the short term is to continue to get more conservative. Over the last few months, we have been steadily decreasing our percentage exposure to stocks for our more conservative and/or older clients, so overall our portfolios are more conservative than ever.
Our plan is to do some more selling on Monday if the market provides us with good enough pricing. We are expecting the economic impact due to the shutdown of California and other parts of the world to be far more severe than we thought even two days ago and we are starting to consider tail risk a possibility. Our stance at the moment is to err on the side of caution rather than chasing returns. For those of you that are more aggressive, we are starting to cautiously look for bargains. Hopefully the measures that the Government has taken so far and continues to take will slow or even stop the spread of this disease and we can get back to business as usual. If prices continue to fall, we will begin buying back in to the market. As uncertainty falls over time, we will also start to buy back even if the market does not continue to decline.
For those of you who are withdrawing money on a regular basis, remember we have our buckets strategy that helped us weather a downturn even as severe as 2008-9. Once again, this strategy relies on our bonds for access to cash both to buy stocks and for you to spend as we wait for the stock market to recover. Last year if you recall, we took advantage of selling high priced bonds to get more conservative with our bonds by reducing the length of the bonds we hold. Additionally, we expect the Fed to prop up the bond market and not let healthy companies default due to a credit crisis.
It seems that every hour there is a significant development in this current crisis and we are constantly having to reevaluate the world. We have gotten input directly from several of you, some people thinking it’s a good time to buy, others to sell everything and still others to hold. If we do not hear from you directly, we will continue to manage your portfolios as we feel best, relying on the information we get both from the media at large and Government direction. Keep in mind, we are customizing our buying and selling decisions based on the many conversations we have had with you through the years and our knowledge of your risk tolerance, withdrawal needs, and beliefs.
Please do not hesitate to reach out to us directly if you wish us to take a different tact with your portfolio, whether that is to buy or sell. We will be checking our email all weekend and meeting as a firm (virtually) to discuss our strategy for next week on Sunday evening.
Best wishes and stay safe,
Alexander D. Parrs, CFA, CFS, ChFC, CFP®, CASL