February 28, 2020
No doubt you will come home to headlines and news around today’s continued slide in the global markets. We wanted to provide you with our current insights and remind you that, as always, we are monitoring markets and economies closely with great care and thoughtfulness.
Key Takeaways:
Here is our analysis. We are not yet tempted to purchase in this dip until we have some data to support stabilization. Stabilization can be found when we have a greater understanding of the severity of the spread of the Coronavirus and the potential for it morphing into something more complex or not. Simply stepping back, the statistics are all over the map but the data suggests that infections are actually slowing and the death rate is maybe half a percent higher than the common seasonal influenza.
One of our jobs is to remove emotion based reactions to market moves and look as objectively as possible at all the facts. When we look at past outbreaks (SARS, ZIKA, H1N1) markets have typically entered into 9-12% correction periods but then quickly recovered. Markets were greatly over-extended and this pull back provides an opportunity for valuation metrics to cool down – which is healthy as the market breathes in and out. Â
On the flip side, the market does not like uncertainty of this magnitude. Clearly there will be economic repercussions due to China’s shut down – this will affect our supply chains. Post the 2008/2009 crisis, our supply chains for manufacturing small parts has become quite dependent on China. Slowly, companies are posting warnings about not meeting earnings expectations, which is yet another concern for financial markets, but could also be setting them up for future earnings beats.Â
As far as positioning, while we are participants in the market, your portfolio continues to be well diversified with an overall lower risk measure to the market. Our current diversification makes sense in our eyes. Corrections of this magnitude are not uncommon after such a strong performing 2019. We tend to be defensive managers with a strong eye for risk, so if we see that these factors begin to affect some important risk indicators, we will act accordingly. Â
Please call us if you have any questions. It is our pleasure to diligently navigate these situations and provide you the best possible service and confidence.
Best regards,
The Willow Team
+1 413 236 2980
