Financial Commentary

Resilience in a Down Market
We know this is an extraordinarily unsettling time. The fear of the coronavirus and the uncertainty around a global pandemic has altered everyday life for people around the world and has caused a global market sell-off. People and markets are looking for answers that likely won’t be available for a few more weeks, or worse, months. Yet it is in the midst of these grueling moments where we encourage you to find strength, exercise patience and have faith. As Eleanor Roosevelt said, “It is better to light a candle than curse the darkness.” We wholeheartedly subscribe to this approach.
 
Current Status of the US Financial Markets
Year-to-date as of March 18, 2020 market close, the S&P 500 Index has dropped 25.77%; the Dow Jones Industrial Index has lost 30.27%; and NASDAQ Index has given back 22.10%.1.  A market decline of 20% or more from its high is considered a “bear market.” Using that definition, the U.S. stock market is now in a bear market.
 
According to The Balance, from 1900-2014 there have been 32 bear markets. Statistically, they occur about once every four years and last an average of almost a year2. The US has not had a bear market for more than 10 years.
 
The Role of the US Government
To help combat the crisis, the federal government has introduced a number of dramatic actions. First, the Federal Reserve Bank cut the Fed Funds rate twice to help bolster the economy. The Treasury Department then bought bonds to directly pump money into the financial system.  On March 17th the Treasury Department proposed an emergency stimulus package totaling almost $1 Trillion in broad measures that included payouts to individual Americans ($500B), a bailout to the airline and other affected industries ($200B), and Small Business Interruption Loans ($300B).3 The next day, President Trump signed the Families First Coronavirus Response Act, a bill approved by the House and Senate that targets paid leave and expanded testing.
 
The Power of Resilience
The moves by the U.S. Government are encouraging and necessary. That said, we don’t know what the downside to the economy will be, nor do we know the upside response in the economy and the stock markets once the crisis passes – and it will pass.  What we do know is that over the long term, the US economy and the stock market are very resilient and do recover and continue to grow. Just look at this partial list of market shocks since 19804:
 

“Black Monday” stock market drop
in 1987

Two wars in Iraq

The bursting of the tech stock bubble
in 2000

The September 11, 2001 terrorist attacks

The 2008-2009 global financial crises

The 2010
“flash crash”

The European debt crisis that began
in 2011

The U.S. debt rating downgrade in 2011

The 2016 Brexit vote and its aftermath

Various spikes and collapses in the price of crude oil

The U.S.-China trade war that began in 2019

Other disease outbreaks
(including Zika in 2016-17, SARS in 2002-03 and avian influenza in 1997)


Despite these shocks, from 1980 to 2019 the S&P 500 Index posted an average annual return of 11.8%4.
 
Stay the Course
Using history as our guide, our counsel remains to stay the course and not try to time the markets. As Warren Buffet once said,” Wall Street makes money on activity. You make money on inactivity.” The time to sell is not when markets are down and emotions are high.
 
A Fidelity Investments’ study concluded that if you miss the top five trading days in the market, a hypothetical $10,000 investment in the S&P 500 from 1980-2018 would have been worth 35% less than if you had remained fully invested over that same period of time.5   
 
Similarly, Charles Schwab published a study called, “When Markets Dip, Don’t Drop Out.”  (For the full analysis visit https://www.schwab.com/resource-center/insights/content/when-markets-dip-dont-drop-out). The research compares three different investor types from 1980 - 2019, each with the same $0 starting portfolio and same asset allocation.  Let’s see how each investor performed:
 
Investor Type Wealth
Accoumulated

(1980-2019)6
“The Stalwart”
Over the course of four decades, this disciplined investor sat tight and continued to invest 10% of her salary per year, no matter how the market performed.
$1,102,281
“The Reactor”
This investor stuck it out through several bear markets but pulled his money out of the market in 2008 and kept it out. He continued to invest 10% of his salary per year in the hopes of recouping some of his losses but didn’t invest it.
 
$484,902
“The Waffer”
After any year with negative returns, this investor moved all her money out of the market but continued to save 10% of her salary per year. If the market was up after two years she got back into the market by reinvesting in a portfolio suitable for her age group.
$615,349


Resilience in a down market can be a powerful strategy.
 
In closing, we know this period may be testing your resolve. It is completely natural given the circumstances. It’s also why Coastal will remain committed to keeping you on track, to provide context and advice, and instill confidence wherever possible.
 
We are here for you.
 
James Horrocks, CEO
Coastal Capital Group, Inc.
222 Rosewood Drive, 2nd Floor
Danvers, MA. 01923
978.777.3116
james.horrocks@ccgwealth.com
 
1 Source:    Marketwatch.com, March 18, 2020.
2 Source:    Thebalance.com; January 5, 2020.
3 Source:    Axios.com, Coronavirus White House Stimulus Proposal, March 18, 2020
4Source:     Bloomberg and Lord Abbett.
5 Source:    Fidelity.com/viewpoints/investing-ideas/six-tips/ FMRCo, Asset Allocation Research Team, as of January 1, 2019.
6 Source:    Schwab.com, When Markets Dip, Don’t Drop Out. March 12, 2020.

 

Investment advice offered through Coastal Capital Group, Inc., a Registered Investment Advisor. Securities offered through Purshe Kaplan Sterling Investments, Member FINRA/SIPC. Headquartered at 18 Corporate Woods Blvd., Albany, NY 12211

The opinions and information presented above were prepared by Coastal Capital Group Inc. and do not necessarily represent the opinion of North Shore Bank. By providing this information North Shore Bank is not acting in an advisory capacity, is not recommending any particular investment or investment strategy, and does not assume any responsibility or liability.
 
NOT A DEPOSIT, NOT FDIC INURED, NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY, NOT GUARANTEED BY THE BANK, MAY GO DOWN IN VALUE.


Investment advisory services offered through Coastal Capital Group, Inc., a Registered Investment Adviser. Coastal Capital Group, Inc., and North Shore Bank are not affiliated

222 Rosewood Drive
2nd Floor Danvers, MA 01923
978-777-3116
coastalcapitalgroup.com