With the recent coronavirus (COVID-19) outbreak, investors are facing additional levels of uncertainty surrounding the potential economic and market impacts–in addition to the obvious health concerns.
As the situation evolves, we have addressed the situation based on the most current industry information.
Q: How is the pandemic affecting the wealth management industry?
A: After looking past the economic risks posed by the COVID-19 threat, news of accelerating incidents outside of China caused the market to pay attention–and in a rather severe manner beginning in February. Global equity markets retreated abruptly in the days following the February 19 high, with the S&P 500 Index in the U.S. experiencing its worst weekly slide since October 2008.
Equity market concerns are focused on the potential earnings impact of shut-downs initiated to contain the spread of the virus. The contraction in manufacturing activity in China, which accounts for about a third of global manufacturing activity, was on a scale comparable to the impact of 2008’s Great Recession–except this pullback occurred in the span of one month! Tourism related industries were also affected. Investors moved decisively into “risk-off” mode, with the most economically sensitive sectors being hit especially hard. Safe haven markets such as U.S. Treasuries and gold saw positive flows, although the usual safe haven U.S. dollar was not among the beneficiaries.
Bond markets witnessed sharp price increases and commensurate yield decreases, with the benchmark U.S. Ten Year Treasury bond yield dropping from the 1.50% yield level to just 1.15% at month-end, and threatening the 1.00% yield level in early March. The adjustment in Canadian bond yields was not as extreme, but also took our benchmark ten year government bond yields down to the 1% yield level, while providing outsized gains for investors willing to stomach the volatility at the long end of the duration spectrum.
Q: What advice do you have for an investor wishing to invest in volatile times?
A: Do it. Volatility is typically a word associated with market declines. When stocks go up (which happens the majority of the time), people seem to think this is what they are supposed to do. Thus, they are only volatile when they go down.
There is a saying that volatility is the price of admission. The reward for enduring volatility is superior long term returns.
Remember, the market is ultimately made up of people–and people are emotional. They make decisions for myriad reasons. Just because the market has temporarily priced a stock at a certain level doesn’t mean it’s intrinsic worth is far greater. Provided you have time on your side, volatility really presents you with the opportunity to acquire a superior company at a better price.
Q: How is The RaeLipskie Partnership responding to the global crisis?
A: In light of the recent COVID-19 outbreak, The RaeLipskie Partnership is taking precautionary measures to ensure the health and safety of our clients, staff and community.
As an essential service, our portfolio services will continue to operate. To help mitigate the spread of COVID-19, we have closed our physical offices and all in-person appointments have been canceled until further notice.
To continue our services, our entire team will be working from home. We are also practicing physical distancing and adhering to stringent health and safety protocols.
Clients can also expect us to perform heightened security measures at this time.
Over the past 30 years, The RaeLipskie Partnership has endured many challenges, including the technology meltdown of 2000 and the global financial crisis of 2008. We are confident that we will overcome this global crisis as a community!
We will continue to monitor the rapidly evolving situation and act accordingly.
We thank you for your patience and understanding during this difficult time. If you have any concerns about how the pandemic affects your portfolio management, contact us to schedule a video chat or phone call with your portfolio manager.
For more information about the COVID-19 in the community, please visit the Region of Waterloo website.