Quarterly Market Review

And here we are, on the backside of one of the wildest quarters in market history, with our focus on both the causes and consequences of the largest pandemic in over a century. COVID-19 has flipped our world completely upside down, inside out, and any other analogy you want to throw at it.

After a banner year in 2019, the S&P 500 closed the year right around 3,230, and kept climbing going into February. The “market” was as high as 3,386 on February 19, just shy of a 5% gain in the first 50 days of the year. Corona-virus, as it was still referred to then, was an issue in China and had jumped to Europe, but seemed like a distant threat to the United States. In the remaining 41 days of the quarter, the entire world changed, most countries are on lock-down or at least limiting social interaction. The market then preceded to fall more than 30% and bottomed on March 23rd at 2,237.

Our government establishments fought back, since the bottom we’ve seen unprecedented monetary and fiscal actions introduced and initiated, and the market has reacted positively in the last few days of the quarter to the tune of a 17% bounce back. However, we still have a long way to go. As of now, COVID-19 is still the primary concern, but overly leveraged companies that will have limited access to capital going forward and an oil price war between Saudi Arabia and Russia driving the price of oil down to levels we haven’t seen in almost 20 years, makes the looming recession all but a certainty.

The real question now is, what kind of recession will this one be. The less optimistic assessment is one that takes into account some of our bleakest fears. Those consist of an extended economic shutdown, unemployment greater than 25%, a near complete collapse of our energy sector and losing energy independence, and the Fed’s inability to slow the free-fall because they’ve exhausted all their tools for economic control. The similarities of where we’re at now and the lead-up to the Great Depression are scary, and a long, slow recession is a possibility.

The more common forecast is one of hope and optimism. Many economists are anticipating a “V-shaped” recession that begins with a sharp decline in GDP and corporate profits, but quickly turns around and bounces back to 2019 levels. The range varies, but a four to five quarter “quick” recession is a fairly common forecast. Which makes sense considering the Fed/Treasury’s unconstrained/unlimited response and apparent willingness to stop at nothing to keep this economy “between the ditches.” And a medical breakthrough involving a cure/vaccine is a distinct possibility, especially considering the wartime type, “all-hands-on-deck” effort by our public and private healthcare industry, which would allow us to return to our normal (if we can remember what that looks like) lives quickly.

As is usually the case, the reality will likely be somewhere in the middle of these two outlooks.

Our investment management team has been working tirelessly to continue finding optimal strategies so our clients can complete their financial objectives on time. We know there are tremendous difficulties out there. That’s why hiring a team that not only understands economic cycles, but also knows how to structure portfolios according to probability of outcome will give our clients the highest likelihood of financial accomplishment. We know there are many more reasons for this market to go back down and re-test, if not reset, lows than there are for believing we should see a rapid recovery from here with few interruptions.

Right now, we encourage you to stay safe, find as much enjoyment as possible in the social distance, and keep following our commentaries for more insights and opinions.

All the best,

The Sphere Wealth Management Team

Sphere, LLC is a Registered Investment Adviser. Advisory Services are only offered to clients or prospective clients where Sphere, LLC and its representatives are properly licensed or exempt from licensure. Investing involves risk and possible loss of principal capital. No advice may be rendered by Sphere, LLC unless a client service agreement is in place. Additional information about Sphere, LLC also is available on the SEC's website www.adviserinfo.sec.gov

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