By David Morton
Markets go up, markets go down, and for most people one of these is more fun than the other.
Financial markets continue to be roiled since the end of February, and volatility, fear and uncertainty continue to push major market indices on a wild ride halfway into March. News of the global pandemic Coronavirus (COVID-19) drove stocks lower as investors ran for cover and repositioned their holdings into safer assets like U.S. government securities, gold and cash.
While it remains to be seen just when this prolific Coronavirus will be contained and how many lives it will claim, we do know that global supply chains are severely disrupted, travel is slashed, oil prices have fallen off a cliff, school and sporting events have been postponed, and the near-term global economic outlook appears gloomy.
Without a doubt there is a lot out there to be scared of, but this abundant fear and irrational panic selling will subside. During this young century we've already experienced the bursting of the dotcom bubble (2000-2002) and the more recent, but no less painful, Great Recession (2007-2009). We should treat today's volatility like a familiar movie where you know the beginning (markets sell off drastically), we know the end (markets eventually stabilize then rebound), but what happens in the middle can drive our emotions in many directions.
In an investment advisory bulletin we recently distributed to clients, we included a chart outlining various maladies in the past 40 years that had the world on edge, including AIDs, SARS and Ebola. Once the epidemics were contained, the U.S. stock market typically moved higher over the subsequent six- and 12-month periods.
Admittedly, we still don't know how much economic damage and loss of life the Coronavirus will cause, but I'm confident the virus will eventually be contained and managed, and our lives will return to relative normal. But right now, in this very month, we are truly experiencing "March Market Madness", and I've cobbled together a bracket to help put things in perspective. For those unfamiliar with the format of the now canceled, world-renowned annual "March Madness" college basketball tournament that this bracket is based on, there is a grid with four regions, each comprised of 16 teams, who are seeded 1-16 based on variety of factors. Each region plays a tournament until a winner is crowned; then the four winners (aka "The Final Four"), face off for the ultimate prize of tournament champion.
Please note that the bracket is meant to be a simple, visual aid to help you consider the big picture in a lighthearted way. In no way am I downplaying the severity and seriousness of the Coronavirus, nor the unknown impact to come.
Similar to the basketball tournament, I've created four regions under the "March Market Madness" field: Planning, Fear, Greed and Chance. There are 16 themes or elements within each quadrant, loosely seeded based on where they rank in order of importance. Like the tournament, the seeding positions are likely a point of contention from one observer to another.
In the Planning region, you'll observe the typical components that comprise a well-rounded financial plan. So, what seeding would you assign your personal financial plan? The "My Financial Plan" entry should be a No. 1 seed and absolutely outrank and outlast any challenger because, if constructed properly, it is built to last and withstand all shocks to the system. Estate Planning and Retirement Income are also contenders. The dark horse is Risk Management, given these uncertain times.
When we analyze the Fear region, we see newcomer Coronavirus as a formidable top seed, having literally come out of nowhere this year. But don't forget about perennial favorite Inverted Yield Curve, or recent giant killer Fake News. A dark horse here may be the U.S. Presidential Election, with Bernie Sanders and Joe Biden sparring for the democratic nomination to face President Donald Trump in November.
Out of the Greed region, FAANG Stocks (better known as Facebook, Amazon, Apple, Netflix and Google) have been a consistent favorite over the years, along with Market Bubble. Interest Rate Cuts came on strong last year after a long hiatus, while Hot Stock Tip can always play with one's emotions and lead to questionable decisions. The dark horse pick: Cryptocurrencies.
Finally, we have the Chance region where planning is often shunned in favor of luck, good fortune and government entitlement programs. Flip a Coin could go deep in decision making or get snuffed out early. Government entitlement programs like Medicaid and Medicare will also be there to compete. Lottery Tickets is the true sleeper pick, because who doesn't like to dream big and hope for that Cinderella story?
Review the "March Market Madness" tournament and ask yourself “will any of these themes bust my bracket?” If you don't feel your "My Financial Plan" will stand up to the other competitors then it's time to refocus, retool and get your financial house in order. Reach out to us and let's continue the planning conversation to get you where you want to be
Heritage Financial, LLC - March Market Madness Bracket