Global equity markets have now entered into a bear market, which is defined as at least a 20% drawdown from the high point or peak. Fear of the coronavirus (COVID-19) and the uncertainty of a potential GDP recession have driven the price of stocks and other risk assets lower.
However, investors with diversified portfolios have benefited from holding high-grade bonds and other risk control assets, which to date have generated a positive return. These types of investments continue to provide a layer of protection to portfolios in times of market volatility. Our investment portfolios combine a mix of risk assets and risk control assets, and are built with the awareness that bear markets have historically occurred about once every six years.
- 2020 started with equity market valuations slightly above long-term averages
- Coronavirus (COVID-19) emerges in China and negatively impacts the global supply chain
- Saudi Arabia initiates an oil price war sending crude oil prices down significantly
- Coronavirus (COVID-19) quickly spreads around the world and the initial supply disruption turns into a massive demand disruption
- Probability of a recession increases dramatically and the 11 year old bull market is quickly ended
- US Federal Reserve lowers interest rates to zero as part of wide-ranging emergency intervention
The US economy has a strong history of overcoming adversity. Over the last 25 years, CEIC data shows that we have successfully dealt with 10 significant health scares. History would suggest after a notable uptick in reported cases, the spread of the virus will eventually slow down and people will get back to normalcy. Long-term investors should consider the following:
- Low oil prices and Interest rates are good for consumers
- A significant amount of demand for goods and services has simply been postponed
- Equity market valuations are more attractive
- Credit spreads have widened offering investors greater return potential
When short-term volatility spikes like it has recently, we maintain our disciplined long-term approach and look for opportunities to add value. If you would like to discuss your account in more detail, please contact me at your convenience.
Nicolet Wealth Management
Investment and insurance products:
- Are Not FDIC Insured
- May Lose Value
- Are Not Bank Guaranteed Are Not Deposits
- Are Not Guaranteed by Any Federal Government Entity
- Are Not a Condition to Any Banking Service or Activity
Advisory services offered through Nicolet Advisory Services, LLC, a Registered Investment Advisor. Securities and insurance products offered through Private Client Services (“PCS”), member FINRA/SIPC. PCS is not affiliated with Nicolet National Bank, Nicolet Wealth Management or Nicolet Advisory Services.
Nicolet Wealth Management is a brand name that refers to Nicolet National Bank and certain of its departments and affiliates that provide investment advisory, trust, and insurance services.
Nicolet Advisory Services, LLC, is an investment adviser, registered with the U.S. Securities and Exchange Commission, and an affiliate of Nicolet National Bank. Nicolet Advisory Services, LLC recommends the brokerage and custodial services of TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is not affiliated in any way with Nicolet National Bank or its affiliated companies.
Trust services are offered through Nicolet National Bank, a national bank with trust powers. Trust services utilizes SEI Private Trust Company (SPTC) as its custody provider. SPTC is not affiliated in any way with Nicolet National Bank or its affiliated companies.
Neither Nicolet National Bank nor its affiliates offer tax of legal advice. Investors should consult with their legal and tax professionals before making investment decisions.