Weekly Market Commentary April 07, 2020

Guidance Wealth will be closed Friday, April 10th to observe the Good Friday holiday
 
 The Markets
 
As has happened many times with historical events, COVID-19 has changed our world in ways previously unimaginable. In many states, Americans shelter at home, venturing out for groceries, medicine, and other essentials. Parents have become teachers guiding online schoolwork, often while balancing their own work and online meetings. We are learning to manage the loneliness, frustration, and anxiety that accompany quarantine conditions.
 
We are also learning to cope with rapid and unexpected financial stress, despite just weeks ago enjoying an economy which was thriving and seemingly unstoppable.  In less than a month, businesses have adapted to changed circumstances. Some are laying off or furloughing workers. Others have put equipment and technology in place to allow continued or remote operations. There is an impressive group of medical leadership working with the White House who continues to tell us that this virus has a curve associated with it, and that the best-case scenario would be to lower the peak of the curve.  Our collective hope is the curve will flatten.
 
Despite solid performance early on, the first quarter of 2020 was one of the worst ever for U.S. stock markets.  However, it is also important to understand that this market performance was largely based on fear; fear of the unknown, fear of not having enough, and fear of losing what had taken so long to build.  As it relates to our current situation, the bulk of the recent negative movements in the markets were mostly due to fear and a desire for safety in the face of a potentially real danger.  Below is the play by play.        
 
At the start of the quarter (and the year), investors were confident despite concerns about trade. Many asset classes finished 2019 on a positive note. The Standard & Poor’s 500 Index and the Dow Jones Global (ex U.S.) Index both finished the year with double-digit increases. Bonds and gold delivered positive returns, too.  Markets stuttered in January when conflict arose between the United States and Iran but recovered quickly as tensions eased. Soon thereafter, the United States and China reached a preliminary trade agreement. Investors were thrilled and the Dow Jones Industrial Average surpassed 29,000 for the first time ever.
 
It wasn’t until late January that news of the coronavirus outbreak in China began to unsettle investors. Many were concerned that precautions designed to slow the spread of the virus could also slow China’s economic growth and, by extension, global economic growth.
 
Major U.S. stock indices continued to gain value in February. At the time, Ben Levisohn of Barron’s reported, “They say the best defense is a good offense. The U.S. stock market may offer both… loading up on U.S. stocks looks like the right move. That’s because the world’s problems [coronavirus in China and lackluster economic growth in the European Union] might actually make U.S. markets more attractive.”
 
The early-March decline in U.S. stock markets was triggered by price wars in the oil market. Natasha Turak of CNBC reported that Saudi Arabia and Russia failed to reach agreement about output, which sparked a price war. The subsequent supply and demand imbalance – the market was glutted with oil in a time of falling demand – caused oil prices to drop sharply.
 
Demand for oil continued to drop as coronavirus spread into more countries. U.S. stocks reflected concerns that COVID-19 could become the catalyst for recession in the United States and elsewhere, reported Heather Long and colleagues at The Washington Post. Uncertainty increased when, during U.S. earnings calls, many companies were unable to quantify the potential impact of coronavirus on their businesses.
 
As the potential human toll of the virus became better understood, many states closed non-essential businesses and issued shelter-in-place orders. Investors began selling shares to ensure they had cash available. As a result, shares were sometimes sold at low prices with little regard for long-term performance potential.
 
Nicholas Jasinski of Barron’s reported monetary and fiscal stimulus, including relief for individuals and businesses, has helped restore some optimism to markets. In addition, greater certainty about the potential dimensions of the virus may be restoring confidence. He wrote:
 
“Now, investors seem to be moving on to the next stage of the coronavirus market: picking winners and losers. The correlation between stocks in the S&P 500 index has retreated from its recent near record-high levels, a sign that investors may be considering them more on their own merits. And day-to-day index volatility has fallen significantly since the Dow’s three-day surge.”
 
It is possible we have passed peak uncertainty. While the exact dimensions of the coronavirus remain unknown, investors’ fears have begun to recede. Barron’s reported the CBOE Volatility Index (VIX), Wall Street’s fear gauge, closed below 50 last week for the first time since early March.
 
Major U.S. stock indices finished last week lower, capping the worst monthly and quarterly performance in U.S. stocks since the 2008 financial crisis.

Weekly Focus – Think About It
 
As we continue to talk about market movements and those who are rightly concerned for our families, ourselves, and all our collective futures as a nation and as a world, it reminded us of these lines from the film “After Earth” when Will Smith’s character tells his son:
 
“Fear is not real. The only place that fear can exist is in our thoughts of the future. It is a product of our imagination, causing us to fear things that do not at present and may not ever exist. That is near insanity. Do not misunderstand me, danger is very real, but fear is a choice.”
 
We need to remember that fear can also keep us from seeing workable solutions to the dangers we may be facing… or even opportunities which exist now. 
 
 
Investment Advisory services offered through Guidance Investment Advisors, LLC, doing business as
Guidance Wealth, LLC, a registered investment adviser registered with the Securities and Exchange Commission. SEC Registration does not imply any level of skill or training.
 
* These views are those of Carson Coaching, and not the presenting Investment Adviser Representative or the Representative’s Registered Investment Adviser, and should not be construed as investment advice.
* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named registered investment adviser.
* Weekly Market Commentaries are sent as mass email communications by the designated email address weekly_update@guidancewealth.com.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
 
Sources:
https://www.washingtonpost.com/business/2020/04/03/unemployed-coronavirus-faq/?arc404=true (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/04-06-20_TheWashingtonPost-Coronavirus_Unemployment_Guide-What_to_Do_if_You_Get_Laid_Off_or_Furloughed-Footnote_1.pdf)
https://www.troweprice.com/personal-investing/planning-and-research/t-rowe-price-insights/markets/global-markets-weekly-update.html
https://www.axios.com/jerome-powell-interest-rates-2019-73b78462-04f8-4f77-8aff-eee25f35f803.html
https://www.cnbc.com/2020/01/08/us-iran-markets-are-ignoring-the-idea-of-a-bigger-conflict.html
https://www.marketwatch.com/story/dow-on-the-verge-of-notching-milestone-level-at-29000-as-mideast-tensions-fade-2020-01-09
https://www.livescience.com/first-case-coronavirus-found.html
https://www.forbes.com/sites/sergeiklebnikov/2020/01/31/markets-plummet-dow-drops-over-600-points-as-coronavirus-infections-outpace-sars/#5e9264725ddc
https://www.barrons.com/articles/stocks-catch-a-cold-after-fed-stops-expanding-its-balance-sheet-51579916069?mod=hp_DAY_1 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/04-06-20_Barrons-Stocks_Catch_a_Cold_After_Fed_Stop_Expanding_Its_Balance_Sheet-Footnote_8.pdf)
https://www.barrons.com/articles/dow-jones-industrial-average-gains-846-points-in-comeback-week-51581124626 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/04-06-20_Barrons_Coronavirus-Slower_Growth-The_Dow_Just_had_a_Spectacular_Week-Footnote_9.pdf)
https://www.cnbc.com/2020/03/08/opec-deal-collapse-sparks-price-war-20-oil-in-2020-is-coming.html
https://www.washingtonpost.com/business/2020/03/09/coronavirus-panic-stunning-market-declines-fan-recession-fears/ (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/04-06-20_TheWashingtonPost-Coronavirus_Panic_Stunning_Market_Declines_Fan_Recession_Fears-Footnote_11.pdf)
https://insight.factset.com/are-analysts-slashing-sp-500-eps-estimates-for-q1-due-to-the-coronavirus
https://www.barrons.com/articles/dow-jones-industrial-average-drops-584-points-for-week-why-thats-progress-51585963044?mod=hp_LEAD_2 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/04-06-20_Barrons-The_Dow_Dropped_584_Points_this_Week-Why_Thats_Good_News-Footnote-13.pdf)
https://www.washingtonpost.com/opinions/2020/03/23/yes-this-business-still-has-your-email-heres-how-were-responding-covid-19/ (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/04-06-20_TheWashingtonPost-Yes_this_Business_Still_has_Your_Email-Heres_How_Were_Responding_to_COVID-19-Footnote_14.pdf)
After Earth, Sony Pictures released May 31, 2013 (USA)