Managing through the COVID-19 Bear Market

Benjamin J. Michaud, CFA

BIO

Since our March 9^th note, the S&P 500 officially entered bear market territory, down more than 20% from its all-time high on February 19th[1] (a bear market is commonly defined as a decline of at least 20%). Due to the speed of the decline (22 calendar days) and the rapidly evolving nature of the COVID-19 outbreak we want to maintain regular communication. In this spirit, please bear with us if some of what follows rings familiar.

The world is right to be gravely concerned about this very serious public health crisis. But, heightened awareness should help accelerate steps we’ll need to contend with the virus’s imminent spread. As truly frightening as current developments are, we remind ourselves how important it is to stay the course and fight the urge to sell equities in the face of scary declines.

Over the last decade essentially, in a world devoid of real returns in the bond market, we have counseled our clients to simply reserve 3-5 years of spending in highly liquid investments and remain fully invested in the highest-quality publicly traded franchises.  The efficacy of this approach to addressing risk and volatility has shown thru in this recent market tumult. But, it’s been frustrating because the US economy and markets were on track to keep delivering strong growth; and even the Eurozone had been showing signs of strengthening. 

Obviously, this is an unprecedented global health emergency that the scientists tell us could persist for months.  However, the long-term data are clear: the best time to invest in equities is during a bear market and when fear and volatility is high. And while bear markets are uncomfortable for even savvy market veterans, our clients are well prepared for any market environment. Holding high quality companies with strong balance sheets and well-covered dividends, while maintaining a liquidity portfolio of cash and short-term bonds, is a proven recipe for long-term investment success.

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HM Payson the Company is well-prepared to respond to the COVID-19 outbreak, with technology in place to conduct everyday business remotely.

Please stay safe, but also optimistic. Humanity and markets will get through this.

[1] The S&P 500 hit an all-time high of 3394.52 on 2/19/20 and fell -27% to an intra-day low of 2478.86 on 3/12/20.