Returns for the major stock indices for 2020, and the current bond and money market yields are as follows:
|Dow Jones Industrial Average||-23.20%|
|Fixed Income Yields||1 year||5 year||10 year||30 year|
|Fidelity Government Cash Reserves Money Market Fund||0.15%|
We are all well aware of the latest market-moving news. First, we hope this letter finds everyone healthy and safe. We know it is an understatement to say that we are all impacted by the COVID-19 virus. We are all confronted with similar challenges, primarily the question of what we should do to best protect ourselves and families from the threats of this virus. These challenges range from healthcare concerns to employment and financial considerations and ultimately, how best to care for those we love. The burdens are heavy, and the uncertainties can be overwhelming. We know and empathize, as we feel it too. As with all challenges in life, we have risks to measure, problems and opportunities to resolve and decisions to make.
Fear, panic, and emotion; everything we have ever studied concerning making rational investment decisions has taught us to be mindful to not act on emotion. We know that feelings and emotions are temporary, felt in real-time and spark internal responses associated with anxiety and fight-or-flight responses. These feelings are real and they affect our behaviors, decisions and quality of life. Though we are not medical experts and perhaps cannot well articulate the biological experience going on in times of stress, we can add some perspective on market history and reflect on how markets withstood other times of fear, panic and recovery.
Yes, this market decline has similarities to some of the most notable in history from World War II price controls, to the fears of the Cuban Missile crisis, the oil embargos of 1973-74, Black Monday of 1987 to the tech boom and bust of the late 1990s, and the most recent global financial crisis of 2008-2009. All of these times were unique in nature but similar in market reaction. We know that uncertainty drove fear in each of these instances. While we do not
know ultimately how this pandemic plays out, we acknowledge that each time before, the markets in time fought their way back and the following bull markets were much greater than the preceding decline. From the recent market bottom in 2009 to the peak in February 2020, the market increased by over 450%. Moreover, the bull markets separated by the 1973-74 oil embargo and the 1987 decline increased by 762% and 814%, respectively. We could list the other great bull markets prior to this period, but the point is the same. We know that market rallies often outpace the declines and believe that a new bull market will be born soon and likely this year.
Markets have always hated uncertainty, and this time is no different. The future is unclear. Will the virus roll over in warm weather? Will it mutate and become less or more deadly? Though the outcome is yet to be determined, we also know this is not the first illness to impose uncertainty. We can recall the H1N1 virus in 2009 and others, including, SARS, MERS, Ebola, Zika, AIDS, malaria, and polio. There are many examples of diseases that have caused uncertainty, fear, and panic. We concede the current environment has its unique negative characteristics; but one positive worth mentioning is the worldwide, unified effort to defeat this problem, both medically and financially. We also cannot ignore the positive effects of the two-trillion-dollar federal stimulus package. Perhaps some comfort can be had knowing that we have always persevered, and the whole world is collectively pushing back on this virus.
Over this past weekend, Abbott Labs was granted FDA approval for a test that can deliver results in just minutes, and soon will be making over 50,000 tests a day. Johnson & Johnson just announced human testing of a vaccine beginning in September to ideally have available by early 2021. Novartis’s CEO is pledging to donate 130 million doses of its malaria, lupus, and arthritis drug believed to be an effective therapy in some situations. Gilead Sciences is testing its experimental drug, Remdesivir, against the virus. Though we would not claim to predict which innovation will be most effective, the larger point we are trying to make is that we are fighting back. The world is aligned and we are very confident that solutions are coming, from testing to therapies to vaccines. This problem, while tragic, is temporary and will subside. We urge patience, as this setback may not be fixed as quickly as we wish, but ultimately, we will prevail, the markets will recover and the next bull market will be born.
More than ever, we would like to again thank you for your continued confidence in LYNCH & Associates. As always, we welcome you to schedule an appointment to review your financial situation.
Ryan T. Lynch, CFP® ChFC®
Form ADV Part II of the LYNCH & Associates Uniform Application for Investment Advisor Registration and the LYNCH & Associates Code of Ethics is available to all clients at any time. If you would like to receive a copy, please contact Jennifer Farless at (812) 853-0878 or jfarless@LNAonline.com.
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