Predictions for the Future from Raintree Wealth Management - Raintree Financial Solutions

Predictions for the Future from Raintree Wealth Management

The Coronavirus has taken financial markets by storm. Very little attention was paid to the virus as it developed in China but once its power was felt in Europe, and later in the US, financial markets reacted quickly. In this piece I will try to answer two questions: what happened, and what do we do now?
What Has Happened?
Once investors realized the severity of COVID-19’s exponential growth in western countries, equity markets declined quickly. In fact, as measured from the peak of the market, we have entered this bear market at the fastest pace ever.
entry into bear market
Equity markets aren’t the only area to be hit hard. In the bond markets, credit spreads moved materially higher, which in the bond world has the opposite effect as equity markets. Higher spreads mean lower prices. The primary motivation being that investors demand a higher interest rate (and thus lower price) to accept the risk of a corporation defaulting.
All of this is driven by the economic uncertainty created by the Coronavirus and what lagging impacts will be felt from what has been the effective shutdown of global economies. Economic data has only begun to trickle in but our first taste of what is to come was sobering. US jobless claims topped 9.95 million in the final two weeks of March, more than 14 times the average1 . In response, government and central banks around the world have pledged enormous stimulus packages. In the US alone more than $2 trillion has been put in place to help the economy.
What Do We Do Now?
As of writing (April 8th), stock markets have recovered some of their losses. The S&P 500 has risen 23% from its low and is now down 18% from its peak. Wild swings to say the least – but not unexpected.
Examining the two previous major market corrections we saw similar movements. During both the dot-com bubble and the 2008/2009 recession, we saw markets rebound by over 20% before reaching their final lows. Some believe the worst is behind us while others think we’re in for more pain. This brings me to the most important point of this article. We are in truly unprecedented times and have never experienced such a rapid shock to our global economies. Guessing at what is or isn’t a market bottom can’t be done, and as such speculating on the direction of markets from here should not be attempted.
Coming into this correction, Raintree Wealth Management’s portfolios were positioned very defensively. The primary reason wasn’t fear of a pandemic, it was based on what we believed were overextended and overpriced equity markets. For the first quarter of 2020 our Growth Fund was down 7.9% and our Preservation fund was down 5.1%2 . Our outperformance over the quarter was the result of having a systematic, data-driven plan heading into the correction, not from guessing the direction of markets. During the past weeks we have repositioned our portfolio multiple times – both as buyers and sellers – based on pre-defined targets our investment committee set. Simply put, we are buyers when markets move materially lower and sellers when they move higher. We don’t advocate for timing the market but if you’re interested in learning about how we might help more dynamically manage the risk in your portfolio please talk to your Private Wealth Advisor.
Notes:
1 Source: US Bureau of Labour Statistics
2As of March 31, 2020. Returns are net of administrative fees and gross of management fees.
Greg Bainbridge, CIO
Raintree Wealth Management