Hibernation By: Gabriel PotterMBA, AIFA® 2020.03.23

Westminster Consulting will have a call next Tuesday (3/31) to discuss our views on the markets given the recent volatility.

For those of you who don’t want to wait, here’s one of our key points.  The coronavirus is going to put much of the national economy into a state of hibernation.  While everyone is going to be sharing some of the sacrifice, this will most strongly impact low-and-middle income service workers.  The US is largely driven by consumer demand.  For 25% of the economy (including travel, theaters, restaurants, gyms, hair salons, etcetera) demand is going to be terribly suppressed for a number of months.  We expect unemployment to spike sharply and we know that a sizable number of the workers do not have the recommended 3-to-6-month cash reserve. 

Ordinarily, the markets follow what the economy is doing in the long term.  However, it would be a mistake to look at the immediate impending slowdown of the economy and try and infer a pervasive long-term trend.  Yes, earnings are going to fall sharply.  We expect GDP growth in the first and second quarter of 2020 to be sharply negative.  But those results are going to be outliers.  However, unlike previous financial crisis (like 2008), this is a public health crisis with a clear endgame.  Eventually we will have the testing capability and treatment options necessary to curb this pandemic.  It’s not coming soon, but it is the strongly probable outcome.  We’ve had pandemics and health scares before.  They are daunting, but we will eventually get through this.

It’s important to take care of ourselves in the short term.  It’s also important to avoid making emotional decisions with long-term investing consequences based on the current state of affairs.  Investing is a multi-year proposition and the winners are the ones who don’t over-react during market selloffs. 

 

 

 

 

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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