by Connor Darrell CFA, Assistant Vice President – Head of Investments
If readers of The Weekly Commentary should take one thing from this week’s edition, it should be the following: Hang in there. It’s scary, but it will normalize.

It was another week of uncertainty-fueled swings in financial markets as evidence continued to mount suggesting that the global spread of COVID-19 has accelerated. Equity investors gained a brief respite from the selling on Wednesday following Joe Biden’s better than expected performance in Super Tuesday primary voting, but the positive sentiment quickly evaporated, and stocks ended the week with just small gains. However, what positive sentiment that remained on Friday quickly eroded over the weekend after the Italian government placed about a third of the country’s population under quarantine and oil prices declined precipitously due to OPEC’s failure to reach a consensus for how to address the demand shock stemming from the spread of COVID-19.

Resilience and Discipline Remain Key
The volatility we have observed over the past two weeks has been extraordinary, with daily market moves over the past 10 trading days having averaged close to 3 percent per day. On Monday morning, trading on the NYSE was halted for 15 minutes as part of procedures that have been in place since 2013. These procedures are designed to provide traders with time to take a deep breath and digest all available information, which is in fact exactly in line with what we have been recommending to investors. With that as a backdrop, we believe it is essential for investors to understand what we are seeing in markets and why. 

Across both stocks and bonds, the spread of COVID-19 has prompted the market to reassess the way in which it views risk. The reason for that is relatively easy to pinpoint; if people are unable or afraid to leave their homes, then there is likely to be a substantive impact on economic activity, productivity, and manufacturing. As such, markets have begun pricing in a much higher probability that the impacts of COVID-19 will lead to an economic recession of some kind. Fear tends to compound on itself, and the collective memory of 2008 still weighs heavily on investors’ minds. The fluidity of the situation has also exacerbated volatility because news flow has been quick and fast. In our view, this makes short-term trading even riskier and the importance of discipline even greater. 

At this point in time, it appears abundantly clear that the virus will not be “contained,” and that we will continue to see the number of cases rise around the world. What that means from an economic perspective is still unknown, and that uncertainty will continue to fuel volatility in the weeks ahead. The good news is that the U.S. economy is facing this threat from a position of strength. The catalyst is not fragility in the financial system, and it is not an asset bubble. Additionally, it is difficult to find a point in history where the U.S. consumer was healthier than it is now, and while the recent decline in oil prices has put some areas of the market under pressure, it should translate to savings for the vast majority of Americans. As such, our advice to investors remains the same. A properly constructed, diversified portfolio is equipped to balance risk and return in this environment. Panic is not an investment strategy and attempting to time markets is more akin to gambling than investing; a distinction that is incredibly important since gambling has a negative expected return over time and investing does not.