Investments

In this webinar recording, Simon Quick Chief Investment Officer, Christopher Moore, and Head of Investments, Wayne Yi, discuss the impact of the Coronavirus on people, the economy, and your portfolio. Please contact us if you have any questions.

The spread of the coronavirus and fears of a large-scale outbreak have pulled the equity market into correction territory, with the S&P 500 selling off 12% from its peak last week. International and emerging markets also sold off, but didn’t benefit from the run up the S&P had earlier in the year and are thus down even more year-to-date.

Over the past ten years, the longest bull market on record has left many fortunate investors with substantial gains. Equity markets have annualized at over 16.5% since the lows of March 2009.

There was a lot to be grateful for over the holidays. Strong investment performance is secondary to health, family, and friends, but it does give one peace of mind to fully enjoy the season. Equity markets marched up over 27% through the first eleven months of the year, with Santa delivering another 3% in December to cap the S&P500 at over 31% for 2019. This was in stark contrast to the coal-in-your-stockings December of 2018 where markets gave up 9% and stood at the precipice of the first bear market since the Global Financial Crisis a decade ago. Stocks weren’t the only ones invited to the party. Fixed income assets also received a healthy bid, with the Barclays Agg returning 8.7% in the year. This was the best performance for the index since the dot-com bubble. International markets and smaller caps also generated strong returns, but domestic equities, particularly growth stocks, were once again the ones everyone wanted to get under the mistletoe.

As we prepare for Halloween and the swarms of costumed trick-or-treaters banging down our doors, I thought I’d share a spooky excerpt from the IMF’s latest World Economic Outlook publication: “The global economy is in a synchronized slowdown, with growth for 2019 downgraded again…its slowest pace since the global financial crisis.”

Being an entrepreneur is hard. You face challenges that people who have never been an entrepreneur can’t even imagine. But it’s not all bad. In fact, every once in a while you get a big break and thank your lucky stars you decided to start your own business.

The Tax Cuts and Jobs Act (“TCJA”) of 2017, has been viewed as a “win” for domestic businesses and economic growth, as lower taxes expanded corporate earnings and boosted investor returns. Individual taxpayers also benefited from tax breaks and touted simplified filing requirements.

Equity markets around the world have declined by roughly 10% from their recent peak. We are not of the view that this decline is indicative of a broader selloff in equity markets and instead see this as an opportunity to add to equities at attractive levels. The decline has largely been led by large technology stocks (Amazon, Netflix, Alphabet) after they had experienced a multi-year bull market, but no sectors outside of Utilities and Consumer Staples were spared. The S&P 500 index grew earnings by roughly 22% in the third quarter but guidance for future quarters was muted due to uncertainty around US/China trade negotiations. The reduced visibility into forward growth, combined with rates moving higher in the US, spooked markets. We believe that the decline over the last few weeks is temporary and largely driven by technical factors. Our view is that the US stock market is adjusting to quantitative easing coming to an end in the US and Europe, rates moving higher in the US, and uncertainty around both trade and the upcoming midterm election cycle. We suspect that we will see a continued rotation within equities where the styles, sectors, and market capitalizations that may have been the leaders recently will be the laggards going forward. We are not concerned about a recession anytime soon. The economic fundamentals are sound and supportive of future equity market gains: