Wow, That was Fast!

Wow, That was Fast!

| February 28, 2020

Wow, That Was Fast

There’s an old saying I always remembered at times like this…

“When the market goes up, it takes the stairs.  When it goes down, it takes the elevator.” 

The market declines of the past several days (as of the market close on Thursday, February 27) have certainly been swift and relentless, but not completely out of the ordinary either.  The S&P 500 has dropped 10% over the last five days, and it’s now trading at the same level it was at the end of October, just a few short months ago.


What Happened?

There certainly can be benefits of an interconnected world utilizing a global supply chain.  However, we’re now experiencing one of the drawbacks.  As China struggled to contain the Coronavirus outbreak, economic activity slowed and important parts of the global supply chain broke, negatively impacting current earnings outlooks.

The Chinese stock market was the first to respond, but the US market seemed to be ignoring the troubles overseas and stayed steady as China lost ground during the month of January. Now the roles have reversed… the Chinese market is actually unchanged this week while the US is down sharply.

What Does This Mean for the Future?

We’re not surprised by this market volatility, and we think wild market swings (both downwards and upwards) should be expected over the next little while. 

Our portfolios are designed with a long-term focus and built to weather market storms like this.

We are heartened to see the relative stability in the Chinese markets, but also concerned about the weakness in the US market.  Even stocks that shouldn’t be impacted by global supply chains or economic conditions have had a difficult week.  Republic Services (ticker RSG), the company that picks up the garbage and recycling at my house and many other cities around the country, has lost about 8% of its value so far this week. 

What Should We Do Now?

We’re taking this opportunity to look at our client accounts and do simple things like Tax Loss Harvesting (capturing losses within taxable accounts to offset future gains) and rebalancing the portfolios (buying into the market as prices have declined).

The other actions we’ve written about in the past include:

• Roth Conversions – converting an IRA (or a portion) results in less taxable income when the valuations are lower

• Invest extra cash while the market is on sale – when the market is down, it’s time to invest!

• Postpone discretionary expenses – when the market is at highs it’s time to pre-pay expenses, when it isn’t doing as well, the inverse is the more reasonable action.

• Keep withdrawal rates reasonable – a 4% withdrawal rate at all-time highs might be the equivalent of a 5% withdrawal rate after the market has taken a dip.

• Don’t Panic! Don’t let your emotions get in the way of being a successful investor.

We will continue to monitor market conditions, evaluate our investment strategies, and take actions when prudent.