Wetherby Insight
Total Page：16
File Type：pdf, Size：1020Kb
FIRST QUARTER 2020 Wetherby INSIGHT Newsletter Highlights INVESTMENT OVERVIEW • While global COVID-19 cases have expanded and social distancing efforts continue, governments and central banks have taken aggressive steps to help alleviate the stress placed on corporate earnings and personal livelihoods. We During the first quarter we hired Cole Harper, continue to believe that a stabilization of the spread of the Client Service Associate; and Brittany Huber, virus is the main factor that will determine the outlook for Communications and Marketing Associate. economies, markets and portfolios. We believe in planning Welcome Cole and Brittany! for events such as the current crisis, patience to not sell during a market panic and preparing by positioning portfolios for higher risk-adjusted returns in the future. We marked our 30th anniversary in February, and while we were not able to celebrate in person as IMPACT UPDATE we adjust to our new normal, we are grateful to all our clients and employees for making our longevity • Our focus on diversity, equity and inclusion went deeper with possible. our firm-wide training. We explored the way our own biases color our behavior and perception, the crucial difference between equality and equity and took steps to ensure we Lauren Wood, Wealth Manager and Shareholder, implement the training in meaningful ways. We honored had her five-year anniversary with Wetherby. Black History Month with a tasty – albeit frustrating – team Lauren and her family also relocated to Southern activity and recommended books by great Black authors. California from New York City where she Our annual impact survey showed us all the ways our will be heading our new Los Angeles office. team makes positive and thoughtful choices in daily life, Congratulations and welcome to California, supporting a more equitable and healthier planet. Lauren! FINANCIAL PLANNING Alexandra Harris, Wealth Associate; Debra • Policy changes like The CARES Act and a slate of small Kuang, Wealth Advisor; Sami Maneghabi, Wealth business support programs could benefit you and the and Tax Associate; and Brendan Jung, Senior people you care about. Required Minimum Distributions Wealth Associate became CERTIFIED FINANCIAL from retirement plans have been suspended for 2020, and PLANNER™ certificants. Congratulations Alex, you may be able to return a distribution you have already Debra, Sami and Brendan! taken, saving you from realizing losses due to the recent market downturn. The current market situation and updates to tax law allowing you to claim 100% of the value of some Jennifer Hicks, Wealth Manager and Shareholder charitable donations make this is a particularly good time to and Trevor Hicks, Chief Technology Officer and give, either to charitable organizations or within your family. Shareholder welcomed their new daughter Hazel. Congratulations Jen and Trevor! Wetherby Asset Management First Quarter 2020 1 to strong demand for Treasuries, investors also rushed to raise cash, leading to market imbalances and significant Investment Overview liquidity issues. As a result, many credit-related securities traded aggressively down in price based on the lack of By Bong Choi, CFA, CAIA, Chief Investment Officer; and liquidity, rather than on the merits of their fundamentals. Nick Ongaro, CFA, CAIA, Investment Analyst In response, the Federal Reserve took unprecedented FIRST QUARTER MARKET RECAP measures to inject liquidity into the financial and credit markets by lowering the Federal funds rate to near-zero, and Domestic Equities: The S&P 500 lost -19.6% during the first by reinstating many old stimulus measures that were used quarter. Optimistic expectations regarding moderating trade in the Global Financial Crisis of 2008, as well as initiating tensions and healthy earnings growth were swiftly reversed a stable of new programs. as the COVID-19 outbreak spread, ending the longest bull market in history and causing a likely recessionary period TABLE 1: MARKET PERFORMANCE AS OF 3/31/2020 that is being referred to as the “Great Lockdown.” 3-Year 1Q2020 1-Year Deterioration in the economy caused by business shutdowns Annualized offset by unprecedented stimulus from Congress and the S&P 500 -19.6% -7.0 % 5.1% Federal Reserve have contributed to historically high levels MSCI ACWI ex-US -23.3% -15.1% -1.5% of volatility and divergent views regarding the future path MSCI EAFE -22.7% -13.9% -1.3% of markets. MSCI EM -23.6% -17.4% -1.3% Despite every sector in the S&P 500 finishing lower, given Bloomberg Commodity -23.3% -22.3% -8.6% Bloomberg Barclays US the unique viral cause of the market correction, sectors 3.1% 8.9% 4.8% have experienced significant dispersion. Sectors such Aggregate Bond as technology and healthcare fared relatively well while Source: Morningstar Direct other cyclical sectors such as travel, leisure and consumer discretionary suffered materially. EXECUTIVE SUMMARY International Equities: COVID-19 had a more significant The COVID-19 humanitarian crisis has upended the lives impact on international markets during the first quarter. of most of the world’s population with a velocity that we Developed international equities as measured by the MSCI have never before witnessed. Over 90% of people across EAFE Index finished the quarter down -22.7% and emerging the globe live in countries that have implemented some market equities ended the quarter down -23.6% as measured form of shutdown as a result of COVID-19. There are over by the MSCI EM Index. three million cases and over 230,000 deaths worldwide as a result of the virus, with the U.S. accounting for one-third of The impact of COVID-19 has varied widely across countries, these cases and reporting nearly 60,000 deaths over the last depending on factors such as demographics, geography and few months. The virus has now become the leading cause level of preparedness to combat the spread of COVID-19. of death for Americans, overtaking other diseases such as In addition, the crash in oil prices may continue to cause heart disease and cancer and killing more Americans than heightened market volatility. the Vietnam War. Commodities: Broad-based commodities, as measured by The virus is having a similarly catastrophic impact on the the Bloomberg Commodity Total Return Index, finished economy, resulting in unprecedented volatility. Within a the quarter down -23.3%. The demand destruction caused month, the S&P 500 contracted 34% to reach a recent trough by government-imposed shutdowns across the world has on March 23rd, setting a record for the fastest bear market caused many commodities to decline significantly in price. in history. In whirlwind fashion, the month of April proved to be the best month for U.S. equities since 1987, with the Oil prices plummeted over the quarter, with prices for S&P 500 climbing back 13%. This has caused investors to specific futures contracts going negative as demand from form divergent views on whether we’re past “the” bottom auto, air travel and manufacturing underwent significant of the market or have simply experienced “a” bottom of the reductions. Gold has been the commodity standout from “Great Lockdown,” which is what the COVID-19 crisis is a positive performance perspective, rising nearly 4% over being referred to by many. the quarter. Although technically we have now entered a bull market Fixed Income: Fixed income markets returned 3.1% as in equities, recent economic data is providing a preview of measured by the Bloomberg Barclays Aggregate Index, due things to come, calling into question whether we have turned to a significant fall in Treasury yields as investors sought the corner as COVID-19 appears to be stabilizing globally, safety amid the worsening coronavirus outbreak. In addition or whether the recent rebound is nothing more than a bear 2 Wetherby Asset Management First Quarter 2020 market rally. These types of rallies are often experienced the $870 million package implemented during the Global during recessionary periods (e.g., we experienced a rally Financial Crisis during the Obama Administration, with of approximately 24% during the Global Financial Crisis). more in the pipeline. Initial readings suggest that GDP for the first quarter declined 4.8%, the largest drop since the Global Financial THE BULLS ARE WINNING THE BATTLE SO FAR… Crisis. Given the fact that the first quarter only captured the initial impact of the COVID-19 crisis, consensus estimates for Despite the flow of daunting economic data and dire the second quarter indicate GDP during the second quarter expectations for the second quarter, the S&P 500 is may drop 25% to 40%. Moreover, the International Monetary technically in a bull market, having rallied approximately Fund estimates that global GDP will contract approximately 30% since March 23rd. Risk assets have rebounded 3% this year, causing the deepest global recession since the significantly due to a combination of increasing faith that Great Depression nearly a century ago, when global GDP fell we seem to be past the peak of global COVID-19 cases, and by an estimated 15%. For comparison, global GDP shrank the confidence that the massive amounts of monetary and just 0.1% during the Global Financial Crisis. fiscal stimulus will be effective in offsetting the economic damage caused by the pandemic. In fact, there has been a As a result of the swift contraction in economic strong relationship between the growth and decline of global activity, approximately 30 million people have filed for cases and the level of market volatility, as measured by the unemployment benefits, more than eliminating all the jobs VIX index, which is known by many as the “fear index.” created since the Global Financial Crisis. Current forecasts estimate that the unemployment rate is roughly 15% and The current rally in equity markets may reflect the market’s may reach over 20%, depending on the extent of continuing role as a “discounting machine” of future expectations, business shutdowns, causing many to draw comparisons having already moved beyond the near-term expectations of the COVID-19 pandemic to the Great Depression when of weak GDP and recent earnings data and already pricing in unemployment climbed to 25%.