Dear Client and Friends:

As I know we are all human and living in a time and place with many uncertainties.  It is very hard to understand how back on February 11th, the Dow Jones Industrial Average set an all-time high at 29,568 and news outlets and columnists had Dow 30,000 in their targets.  How fast things can change.  We are now dealing with a virus that has wreaked havoc into the daily routines of many across the world and roiled financial markets.  I wanted to drop you a note on this Sunday evening to try and make sense of a few of the facts and attempt to keep things in perspective.


Here is a name that none of us had even heard of prior to now and is already in the running of most influential in 2020.  We are learning more everyday about this virus and its contagiousness and ability to spread.  Our Centers for Disease Control (CDC) is monitoring outcomes abroad and here in the US.  They are studying what other nations have done to attempt to slow or limit its spread.  Obviously, testing kits and identifying communities where COVID19 infections are highly concentrated is key.  Social distancing, washing hands, and general good hygiene may help to prevent it’s spread.  There currently is not a cure or preventative medicine, but there have been immediate major efforts in this area due to increased funding and changes to approval procedures to expedite this process.  We look to our great publicly traded companies to put their vast resources to work and develop a necessary means that will make us all safer.  Until then, we all are having to make sacrifices in our daily lives, for the betterment of all mankind.  Now is not a time to be selfish, listen to the CDC, check on elderly neighbors, share your toilet paper (I know that sounds crazy, right?), quarantine yourself or family members if they are running fevers and showing signs of sickness.  Below is the link to the CDC with more information regarding the virus.  Another good source of factual information is your state’s own healthcare site.

Last Week Market Actions

These comments are from our Portfolio Manager, Steven D. Loveless, MBA, CPA, CFA Level III

Last week within the fixed income markets, we experienced major price dislocation and movement in the credit markets were at unprecedented levels.  If you want to draw parallels, of the last 50 years, 1987 and the Great Financial Crises are the only comparisons.  In talking with various trade desks, this is what was occurring:

  • The total bond market ETF was down 8.5%, which was the largest 3 day decline ever. Prior record was October 2008.
  • Muni bond ETF was down 7.3%. Largest 3 day decline ever.
  • Investment grade corporates down 12.1%, largest 4 day decline ever.
  • Triple A Mortgage Backed Securities down 4.3% largest 3 day decline ever.
  • Emerging Market Bonds down 11%, 2ndlargest 3 day decline ever.
  • Levered loan down 3.9%, second largest single day decline.
  • For the Muni Bond Market, it was the worst week since 1987. (Bloomberg).
  • The Vanguard Long-term Corporate Bond ETF was trading at a 14% discount to NAV.
  • iShares Liquid Investment Grade ETF was trading at an 8% discount to NAV.
  • Equity markets triggered circuit breakers to halt trading, due to vast percentage changes within the S&P 500 Index.
  • You get the point. There was “hair on fire” PANIC selling in the streets.

Reasons to Remain Calm and Stick to the Plan

Not very often have we experienced a crisis in which all countries have played a role.  This is the reason you are seeing many Central Banks cut interest rates, lower bank reserves, and ease monetary policy in order to stabilize and stimulate economies and markets.

This will tend to inflate and stabilize equity markets, although it will take some time before these policy changes are felt.  In the past, this activity could be considered very bullish for equity markets.

Tonight, our own Federal Reserve announced a 1% rate cut in Fed Funds and commented it intends to remain accommodative “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals,” the Federal Open Market Committee said in a statement.  “This action will help support economic activity, strong labor market conditions, and inflation returning to the Committee’s symmetric 2% objective.”

Keeping Things in Perspective

During these times, my phone is always open to hear your questions and concerns, office 815-577-9125.  We will continue to monitor these events and keep you abreast to news and events that impact you.  As you know, we have always talked about asset diversification and the importance of this in a portfolio.  We are likely to see continued volatility within the markets for months to come.  For those clients taking income, up and down market volatility was considered when assembling the portfolio.  Portfolios should remain diversified and rebalanced during these conditions.

Parting Thoughts

I can only look back on the market events during my career dating back to 1997.  But during this time period, we have experienced many epidemics i.e.; SARS, Avian Bird Flu, Dengue Fever, H1N1 Swine Flu, Cholera, MERS, Ebola, Measles outbreaks, Zika, and now COVID19.  You may remember a few of these names, but my guess is you have no recollection of what the market correction was associated with it, or if there was one.  We will get past this latest Covid19 virus pandemic and will most likely be stronger as a country because of it.  We will learn from it, create better medicines to defeat it, and be better prepared for future disruptions.  Our economy will emerge stronger because of fiscal stimulus both here and abroad.  I’ve attached a timely article, “Reasons to Be Positive About the US Coronavirus Fight” from one of our investment managers, First Trust.  It is a very quick read and I believe you may find it helpful when trying to gain understanding and knowledge during these foggy and hard to understand events.  We will continue to stay in touch with you as these events unfold.

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