News & Insights
YorkBridge Market Commentary
In late February and early March, as the coronavirus began to garner widespread attention manifesting in the most rapid decline of the equity markets in history, we wrote to you about the need for investors to remain disciplined and focused on the long-term objectives of your portfolio.
The vast majority of our clients followed our advice and have participated in the recent market rally that has resulted in most of our clients’ portfolios being modestly negative or, in some cases, slightly positive for the year. Since March 23rd, the day that the broad market indexes made recent lows, the S&P 500 is up 27.8% and the NASDAQ Composite is up 31.7%. This remarkable turnaround in the equity markets is so unbelievable that one must ask the question, is it too good to be true?
Indeed, we think it is.
In our note to you in mid-March, just before the markets hit their recent low, we wrote that “comparing the current situation to past events is very difficult as the circumstances surrounding each situation are never quite the same. But what is always the same is investor behavior.” We have never felt this to be more true. Bear markets historically move through three phases; one, a rapid sell-off, two, a quick recovery believing conditions are oversold, and three a long and difficult period of adjustment.
The reopening of our economy, we believe, marks the beginning of phase three. As a result, the coming months could see choppy market conditions, further testing investor resolve. The process of getting back to business as usual will be difficult for many businesses that rely on close human interaction. The historic spike in unemployment will likely be slow to reverse. And countless other questions abound, not the least of which is if our children will go back to school in the fall.
It is difficult to predict and understand the length, depth, and breadth of this situation, yet the market is currently discounting a rapid path to economic recovery. Current equity valuations suggest investors have simply deferred their expectations for growth, believing that the pre-Covid19 earnings trajectory will get back on track later this year, rather than being fundamentally altered. The average P/E of the S&P 500 has risen considerably on depressed earnings suggesting a ‘return to normal’ for some point in the fall months.
An analysis of fundamentals does not, in our view, support the current market valuations. We think the recent moves are premature, particularly for industries such as industrials, hospitality, transportation, entertainment and others that have been severely impacted by shelter-in-place requirements. The unknowns remain significant and an analysis on fundamentals reveal conditions that have historically indicated the formation of a durable economic recovery are not yet present. For this reason, we believe that now, more than ever, it is imperative to utilize active portfolio management as it is critical to ensure that accounts are invested appropriately to take advantage of those sectors and companies that are likely to emerge from this period in a stronger competitive position.
Headwinds are likely to build in the markets as we move through this period of adjustment and adopt new norms and behaviors. Until proven treatments or a vaccine emerges it will likely be a rocky road and we anticipate a volatile period ahead. Of course, with that, comes opportunities but investors must exercise patience and stay focused on long-term portfolio objectives. We always try to take a dispassionate view of markets, allowing for a process of thoughtful analysis of data and historical perspective to drive our opinions and recommendations. Investors who allow their emotions to dictate actions almost always make poor choices. We will continue to remain vigilant in seeking out opportunities and make recommendations and adjustments to portfolios when and where appropriate.
The Information contained in this document is based on data received from third parties which we believe to be reliable and accurate. YorkBridge Wealth Partners, LLC has not independently verified the information and does not otherwise give any warranty as to the truth, accuracy, or completeness of such third party data, and it should not be relied upon as such. Any opinions expressed herein are our current opinions only. YorkBridge Wealth Partners, LLC is an SEC Registered Investment Adviser under the Investment Advisers Act of 1940 (“Advisers Act”). Registration of an investment advisor does not imply any specific level of skill or training. The information contained in this document is to assist with general planning. Please consult with your own tax advisor and attorney for more specific information.