Spring 2020 Commentary



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Market Recap

For the quarter, U.S. stocks fell sharply, with the S&P 500 losing 19.6%. International stocks also declined, with the MSCI EAFE falling 22.8%. Bonds were the only winner in the quarter, with the Bloomberg Barclays Aggregate Bond Index rising 3.2%.


The year began in a seemingly normal fashion. There was a rally to begin the year, followed by a modest decline that brought the S&P 500 back to a slightly negative return for January. In February, the market began the month with a small rally, bringing the index up to a new all time high on February 19 and a positive return for the year of 4.8%. Everything appeared to be hunky dory, and then the floor fell in.

What followed was the steepest fall into a bear market that has ever occurred. From the mid‐ February highs, the S&P fell a total of 34% in just 23 trading sessions. The selling was so bad at times that the built‐in market circuit breakers were triggered on four separate occasions. These circuit breakers are a mandated halt to trading that occurs if the market falls by more than 7%. These instances were the first time the circuit breakers have ever been triggered since they were implemented following the Black Monday market crash in 1987.

2020 Spring Market Commentary-S&P500

*This graph is not intended to recommend any investment or investment activity.

The root cause of the market’s tumble, of course, has been the spread of the COVID‐19 virus, which has quickly spread across the globe. In just 2 months, reported cases in the U.S. have jumped to over 500,000 and virus related deaths now top 20,000. To slow the spread of the disease, government officials have mandated “stay at home” orders, which have brought many sectors of the economy to a standstill. Airlines, hotels, restaurants, bars, entertainment venues, sports leagues, churches, and “non‐essential” retail and services have all been effectively shut down, and there is little clarity at this point when the new norm of “social distancing” can be dialed back and the economy can begin to get back to normal. Estimates are that about a third of the U.S. economy has been put on hold during these shut downs.

Relief will likely begin once we’ve increased our capacity for testing for the virus and when more effective treatments have been discovered. Ultimately, there will need to be an effective vaccine developed in order for life to completely return to normal. The entire national heath care complex is working feverishly to make progress on these fronts. Recently there have been optimistic reports that not only are the restrictive measures working to slow the spread, there are signs that several experimental treatments and vaccines are showing promise.

In the wake of this health crisis, the stock market volatility has been as bad as the worst market events over the past century. To put this into perspective, the average daily move up or down has been about 0.7% over the past two calendar years. In March, the average daily move was 5%. You can clearly see this burst of volatility in the graph below.

2020 Spring Market Commentary-S&P500-daily % change

*This graph is not intended to recommend any investment or investment activity.

Much of this volatility can be attributed to two important dynamics. The first wave of volatility broke out in late February and has been linked to computer‐driven algorithms that were triggered by technical factors. The second and more treacherous wave occurred a couple of weeks later when margin calls and forced liquidations began a surge of indiscriminate selling that touched almost every part of the market.

The forced liquidations phase of the market decline also negatively impacted the bond market. Municipal and corporate bonds fell sharply in value as large institutions sold anything they could in order to raise cash to meet margin requirements and fund redemption requests from those looking to build their cash reserves. In response, the Federal Reserve, armed with an arsenal of financial crisis era tools, rushed in to very quickly provide liquidity where necessary to relieve strains in the financial system. Their efforts have helped greatly to calm the overall market volatility and to help the bond market begin to recover.

The virus‐related economic impact on households has been severe. As of this writing, more than 16 million Americans have filed for unemployment benefits and it is expected that as many as 30 million or more may ultimately lose their jobs in this downturn. As a result, unemployment could climb to more than 20% by summer. Estimates for the reduction in GDP in the coming quarter range from –10% to –35%. However, there is hope that these declines will quickly reverse once the crisis has passed.

The federal government, for their part, has reacted quickly to the brewing economic crisis by enacting an enormous fiscal support program. The recently passed CARES act provides $2.2 trillion in support to families and businesses in an attempt to help those who have been most impacted. Law makers and the Fed have signaled a willingness to do whatever it takes to set the economy up to rebound quickly once the virus risk has passed. There are talks currently underway to add additional fiscal support to struggling businesses. The hope is that these fiscal measures will allow businesses to survive the slowdown and rehire their employees after this crisis has passed. This may work so long as the shut downs don’t persist for a pro‐ longed period of time.

While largely overshadowed by the COVID‐19 crisis, there has been a simultaneous collapse in the energy complex, which of course hits very close to home for us here in Texas. There is a demand issue in that economic activity has fallen dramatically so demand for gasoline and jet fuel for example has decreased significantly. At the same time, Saudi Arabia and Russia locked horns in a production dispute which flooded the market with supply. The result was a collapse in oil prices from $63 at the beginning of the year to $20 at its worst. More recently, oil prices have begun to slowly recover and OPEC has announced a substantial production cut, so there is hope that oil prices will soon bounce back to more reasonable levels.

This economic downturn is unlike any we’ve ever experienced. This wasn’t caused by a cyclical downturn in business activity, it was caused by the government purposely shutting economic activity down. Jim Paulson of the Leuthold Group calls this a “recession by decree.” This has been more like a shock, similar to 9/11, but more broad in scope. This is akin to a global natural disaster, where the impact is sudden and severe. Most of the time, economic downturns caused by a shock recover quickly, but again, we’ve never experienced a shock quite like this.

This crisis has been no fun for everyone involved. Literally, most of the activities we like to do that are “fun” have been temporarily removed from our lives. No getting together with friends at your favorite restaurants. No going to concerts or movies. No taking vacations. We can’t even watch our favorite sports on television. But we all know this cannot go on for‐ ever. There are hopeful signs that state and local governments are beginning to look critically at how we can gradually transition back to a more normal world while also putting sensible guidelines in place to keep everyone as safe as possible. Hopefully we are beginning to see the light at the end of the tunnel. The market has responded to this shift to slightly better news by turning in a terrific market rally in recent weeks, which has reclaimed about half of the losses from the March 23rd lows. We’re hopeful that the good news and market gains will continue.

Thank you very much for your continued confidence in our service and advice. If you would like to discuss our opinions, outlook, or your portfolio in greater detail, we would be happy to schedule a meeting or a conference call at your convenience. Lastly, don’t keep us a secret. If you know someone who would like help planning for their financial future, we will be pleased to speak with them to see if we can assist.

Horizon Wealth Advisors is a Houston based fee-only wealth management firm. As a fiduciary advisor, we specialize in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.

Owen Murray, CFA
Owen Murray joined Horizon Advisors in 2005. As a core member of the wealth management team, Owen is principally involved in investment research and portfolio construction.

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