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CPWM Market Update – February 27, 2020

As you can imagine, we are closely following the news on the Coronavirus and how it will affect not only global health but also how it is moving global markets. With today’s close (2/27), the US S&P 500 has now lost 10% over the past week. We believe that this reinforces our view that markets are controlled by the news cycle and news is certainly not predictable and bad news seems to be magnified more than the good.  

We are also following the knock-on effect of how the Coronavirus will slow the global supply chain out of China and throughout the world. Once again, we are reminded that the world is global and that a plant in Korea will need to shut down production if parts from China are not delivered. The timing of the Lunar New Year’s Holiday in China had production already slowing as it does every year, but in many provinces, workers are still not back to work. We have no way of knowing if the virus will be a short-term issue or a long-term problem, but it is something that we have seen before. Here is a chart of previous “Virus Emergencies” including SARS:

While infections inside China are slowing, the rate of infections outside of China are now increasing. While we invest in very small amounts in some portfolios in China, the ramifications in other markets have already been felt as the markets attempt to price in the news on both the spread of the virus and the loss of earnings. 5% and 10% market corrections are not new and happen almost every year in the market. Additionally, the rebound after market “crisis” has been robust*:

Most portfolios are constructed with an eye towards short-term volatility. We believe in building a portfolio that can withstand the volatility of equities by owning cash and bonds in the portfolio that are less volatile. The Barclays Aggregate Bond index is up about 0.5% this week because of the drop in interest rates across the board.

If you have any questions, big or small, please do not hesitate to reach out and speak with us. 

*In US dollars. Represents cumulative total returns of a balanced strategy invested on the first day of the following calendar month of the event noted. Balanced Strategy: 12% S&P 500 Index, 12% Dimensional US Large Cap Value Index, 6% Dow Jones US Select REIT Index, 6% Dimensional International Value Index, 6% Dimensional US Small Cap Index, 6% Dimensional US Small Cap Value Index, 3% Dimensional International Small Cap Index, 3% Dimensional International Small Cap Value Index, 2.4% Dimensional Emerging Markets Small Index, 1.8% Dimensional Emerging Markets Value Index, 1.8% Dimensional Emerging Markets Index, 10% Bloomberg Barclays Treasury Bond Index 1-5 Years, 10% FTSE World Government Bond Index 1-5 Years (hedged), 10% FTSE World Government Bond Index 1-3 Years (hedged), 10% ICE BofAML 1-Year US Treasury Note Index. Assumes monthly rebalancing. For illustrative purposes only. S&P and Dow Jones data © 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. ICE BofAML index data © 2019 ICE Data Indices, LLC. FTSE fixed income indices © 2019 FTSE Fixed Income LLC. All rights reserved. Bloomberg Barclays data provided by Bloomberg. Dimensional indices use CRSP and Compustat data. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Not to be construed as investment advice. Returns of model portfolios are based on back-tested model allocation mixes designed with the benefit of hindsight and do not represent actual investment performance.

Important Disclosure Information:

Different types of investments involve varying degrees of risk, including the risk of loss of your entire investment. Past performance is not indicative of future results. CPWM and its employees can give no assurance that the performance of any specific investment recommendation or investment strategy discussed herein, whether directly or indirectly, will be profitable, or that it will be equal to any historical performance level discussed herein. The discussion or information contained herein is not intended to be, and should not be deemed as, personalized investment advice. The recommendations made may not be suitable for your specific individual situation and we encourage you to discuss with your financial professional before undertaking any investment strategy or recommendation contained herein. The discussions contained in this blog is current only as of the date hereof and may change due to a number of factors, including varying market conditions.

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