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February 2020 Monthly Review

"I Can't Stand It No More"

By Loyd Johnson, Chief Investment Officer
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Loyd Johnson PhotoA Look Back

Peter Frampton had the perfect single for many market observers to sum up the last week of February and the first week of March in the stock markets. The single I Can’t Stand It No More was released in 1979 as part of the Where I Should Be album. It reached #14 on the U.S. charts and has become something of an anthem for those experiencing angst and/or frustration. Such was the case for many investors as February limped to a close. For the month, the S&P 500 was down over -8%, and over -10% from the all-time high made just a couple of weeks earlier…marking a technical correction. (A negative move of 10% or more from recent highs) Other equity indexes fared poorly as well, with International Emerging Markets performing the best, down only -5.27% for the month. Fixed Income and other traditional safe-haven asset classes performed as one might expect in times of turmoil. The benchmark Barclays U.S. Aggregate was positive by 1.80% in February, bringing the two month total return to 3.69%. For a balanced asset allocation of just the S&P 500 and the AGG, an investor would have seen their portfolio drop around -2.25% Year to Date… Still not what you like to see, but a much more digestible return than what current headlines might indicate. It highlights again the importance of having a thoughtful, diversified approach to your overall asset allocation. Now for some timely facts: corrections are part of the long-term historical average of stocks returning around 10% on an annualized basis. In fact, they occur around once every 11 months. Indeed, we experienced one as recently as the 4th quarter of 2018. In addition, 20% declines, or what technicians label as bear markets, crop up around every 3.5 years or so historically. Equity markets actually fell into "bear" territory briefly on Christmas Eve, 2018. That turned out to be the low, and markets subsequently rebounded and produced an outsized gain of 31.5% in the S&P 500 in 2019. All of this is not to suggest any specific path this time, but rather to put current markets in proper perspective. Contrary to some rhetoric we were hearing a couple of months ago; stock markets can still go down…like they always have. It is sometimes even necessary and healthy to get a reset, as some investors perhaps got too risk-seeking at extended valuation levels.

Stock Chart


A Look Ahead

When we talk about markets and what may lie ahead, it is often dependent on the most recent several months or weeks of trading activity. Lately, it has been more by the day, and even the hour. It would be nice if markets would accommodate with nice, orderly selloffs spread over several months to give investors the time to digest and make adjustments as needed. It rarely happens that way on the downside…at least not anymore. We are reminded of a horse racing analogy. When a horse is chomping at the bit, they want to run, and there is little you can do to hold them back. When they spit the bit out, it is the opposite and the whipping and prodding does little to motivate. Similarly, when investors are prone to take risk, they do so in the face of warning signs and when they want to reduce risk, they do so indiscriminately. We have had four days of 4% market moves over the last two weeks after having only two the previous eight years. The Fed took the aggressive step of lowering short-term rates by 0.5% recently to try and spur demand and calm markets. We will see how that plays out over the next several weeks, but we continue to be true to client asset allocations and look for opportunity in volatile markets. Even though it might feel like you can’t stand it no more…you can…and history suggests you should.