CIO Outlook March 2020: We Continue to Monitor Events and Markets

The last few weeks have brought such a roller coaster of emotion, anxiety, uncertainty, and market volatility that the Presidential Primaries barely seem newsworthy.  The elevation of COVID-19 to pandemic level is scaring governments and markets across the globe.  And now, there are rumblings that a Bear Market is a forgone conclusion.  What we have experienced in the financial markets has stunned and shocked many investors, as we brace for what may happen next.

It seems hard to believe that less than a month ago all the major U.S. indices hit all-time record highs, based on very strong overall market fundamentals. The economy was not weak or retracting at the time the coronavirus panic developed.  I do not believe these recent events signal the beginning of a recession or extended bear market.  I am confident that over time the market will regain its footing and move to hit new highs, as it has historically done.

While the current situation is rapidly evolving and it may be hard to tune out the minute-to-minute news reports, I want to try and put current events into some type of historical context.  This will mark our 23rd correction in the past 10 years, and after each, the market recovered and moved higher. I have been in the financial business for over four decades, and have successfully managed investments through “normal” volatile market cycles. I also have experienced firsthand how the market reacted to previous health concerns, such as SARS and H1N1, and also to other significant “shocks” including 9/11, the dot com bubble in the early 2000s, and the Financial Crisis of 2008-09. I am old enough to have been in the financial business and lived through Black Monday (Oct. 19, 1987), where the market fell 23% in a single day.  World markets too closed off that day, with eight countries closing down 20 to 29%, three down 30 to 39% and three over 40%. 

In the moment, there is always the concern that ‘this time is different’, but when you are able to look at events with 20/20 hindsight, historically extreme bearish sentiment like what we are seeing today has always led to rebounds. 

There are a couple of factors worth noting that may have exacerbated the impact of recent events on the financial markets.  Algorithmic, or machine-driven trading, sometimes referred to as an “informationless trade,” is now responsible for a large percentage of stock trading.  It is basically when a computer decides to buy when the market goes up or sell when the market goes down without any regard to the underlying fundamentals.  Also, I believe the prevalence of passive investment, which also drives buying and selling without regard to company fundamentals, has negatively impacted the overall markets. 

So, what should investors do?  I understand that it is hard not to panic with the barrage of negative and unsettling headlines, but I encourage you to try and remain calm, keep your spirits up, and stay invested to meet your long-term goals. It is impossible to predict what will happen with the market, but we know that investing success comes from time in the market, not timing the market.  With history as our guide, I can confidently say that over the long-run, the bulls have always been right. My honest and true opinion about investing has never wavered. If you buy quality and stay invested over time, you should do just fine.

We continue to monitor events and the markets.  We are not overreacting, and we are confident in the time-tested strategies and rigorous research that led to the formation of our portfolios before the current crisis hit. We will remain steadfastly focused on managing our high-conviction portfolios for the long-term benefit of our shareholders.

Neil J. Hennessy
Chief Investment Officer