February 28, 2020
The headlines are impossible to ignore. February 27th was the worst Dow Jones Industrial Average point drop ever. The fastest 10% market correction ever. $3.4 trillion of value has been erased from the S&P 500 since February 19th. And, yes, these headlines are true. But headlines are not investment philosophies, and they don’t tell us how to invest. We would like to provide Cutler’s thoughts on how our clients should approach the current market. You are always welcome call us to discuss your account or market concerns.
There are two variables driving stocks lower: fear and fundamentals.
Fear is the “elephant in the room.” Investors are rightly scared of the possibility of a global pandemic. This outcome could have severe economic and human consequences. None of our comments are intended to trivialize this possibility. However, fear is a component of the market sell-off that artificially depresses prices. Once the fear subsides, prices can return to their equilibrium.
Fundamentals can have a more lasting effect. Will a complete shutdown of China’s economy have long-term impairments of the global supply chain? Will global travel and trade slow to a halt? What will be the economic impacts of these outcomes?
The balance of these two variables should reflect the true value for equities. With the VIX index (often called the Fear Index) spiking by over 150% over the last week, fear has clearly played a large role in the recent sell-off. But, let’s consider some other fundamental numbers:
These blogs are provided for informational purposes only and represent Cutler Investment Group’s (“Cutler”) views as of the date of posting. Such views are subject to change at any point without notice. The information in the blogs should not be considered investment advice or a recommendation to buy or sell any types of securities. Some of the information provided has been obtained from third party sources believed to be reliable but such information is not guaranteed. Cutler has not taken into account the investment objectives, financial situation or particular needs of any individual investor. There is a risk of loss from an investment in securities, including the risk of loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor's financial situation or risk tolerance. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary. No reliance should be placed on, and no guarantee should be assumed from, any such statements or forecasts when making any investment decision.