Important First Steps
A lot has taken place this week and we feel important first steps have been taken to restore market confidence.
Recent market declines have been similar in many ways to the situation we faced in 2008.
In both cases markets faced an unexpected event that was not anticipated and was sure to cause severe economic damage of unknown duration.
Back in 2008 it was a banking system crisis and this time it is the Covid-19 virus.
Fortunately policy makers recognized the similarities and have taken very aggressive actions to help the economy weather the current storm.
In 2008 it took the politicians and central bankers much longer to take defensive action. It was not until these actions were taken that markets began to stabilize.
This week we have seen politicians and central bankers around the world put in place policies that took weeks to prepare in 2008, and this is a very positive step. Markets have responded in a positive tone. For the first time since the correction began we have seen a significant market bounce that was not immediately followed by a collapse and new market lows.
This is a positive first step that stability is being restored. It is very possible that we have seen the bottom. To give us more confidence we would need to see markets whether the next dip without making new lower lows.
There will be lots of ups and downs in the days and weeks to follow but so far so good.
We won’t know for sure whether the bottom is in until it is over, but we are pretty confident that money put to work at these levels will be rewarded in the months and years to come. We have been starting to buy high quality dividend paying names for those clients that are comfortable with the continued uncertainty in the short term and are taking a long term view. There is also tremendous value in the corporate bond market as bonds were also dragged down in the selling. If the lows hold on the next dip our confidence will increase that the timing is right to get more aggressive putting cash balances to work.
Stay well everyone.