U.S. markets ended the day deep in the red over fears of the coronavirus and the uncertainty of the effects on our economy. The S&P 500, Nasdaq and the Dow each closed approximately 12% lower for the day.
Earlier today, FineMark’s investment policy committee met, for the purpose of discussing what actions may be appropriate to protect our clients’ assets. This afternoon, analysts reduced S&P 500 earnings for 2020 by just 1%. Based on the preventative actions being enacted, we believe this reduction is too low. As a result, we want to assist our clients through this potentially prolonged period of elevated market volatility and uncertainty.
We are not viewing this current situation as a repeat of 2008. We believe the Global Financial Crisis of 2008 was an existential threat to the financial system, where banks were undercapitalized as a result of several factors. The current situation is very different where, at least in the US, the economy went into this crisis operating at full employment and practically all economic indicators were robust. The countermeasures (social distancing) to slow the rate of transmission are causing the economy to slow significantly. In the context of historical recessions, this circumstance is highly unusual. A more normal circumstance would show evidence of supply growing too rapidly, a degradation of demand, or a combination of the two.
We believe this situation will be temporary, but under this period of increased uncertainty, operating with modestly less risk in a portfolio, may be appropriate. As a result of the swift nature of the sell off already experienced, some portfolios may already be in a less risk exposed position relative to their investment policy target.
As we have previously communicated, we do not see the ramifications of the current spread of the coronavirus resulting in a permanent change in the productive capacity of the US, or the world at large. However, we do believe we could remain in a prolonged period of uncertainty, and the ramifications on the economy could have more profound consequences.
All portfolios at FineMark are constructed with your unique desires and circumstances in mind. Decisions are made in concert with our Private Wealth Advisors and our clients. This custom-tailored approach of working specifically with your goals and objectives will result in the best outcome under the challenging circumstances we find ourselves today.
Our Private Wealth Advisors are working diligently to proactively contact our clients. Please do not hesitate to reach out to your Private Wealth Advisor with further questions or concerns.