April 2020 Newsletter to Clients

Enjoy this month’s edition that features a reminder that the income tax deadline has changed and a market summary.

Income Tax Deadline

Please note the Coronavirus Aid, Relief and Economic Security (CARES) Act recently passed by Congress moved the deadline for filing and paying federal income tax on your 2019 income from April 15 to July 15.

Market Summary

Bob Bova, Moneywatch Advisors founder, wrote the following in the January, 2009 Client Newsletter, “The investment markets, namely stocks and bonds, may well be moving upward long before anyone realizes the recession is over.” Bob was quite prescient with his prediction as, according to the U.S. National Bureau of Economic Research, the recession began in December, 2007 and ended in June, 2009. The low of the S&P 500, however, was March 9, 2009 when it closed at 676 – a full three months prior to the end of the recession. From there, it rebounded with gusto and experienced a total annual return of 26.46% in 2009, after a total annual return of -37% in 2008.

Bob’s 2009 newsletter continued, “Many investment strategists are looking fondly at bond investments rather than common stocks because bonds were worse victims of the September-December crash in values. The bankruptcy of Lehman Brothers so unsettled the fixed income markets that our financial system suffered a seizure much like a heart attack.” Similarly, when it became apparent that social distancing was the critical response to the coronavirus pandemic, markets realized virtually all economic activity would stop or slow down. As a result, panic and fear drove down all investments at once, including bonds.

As you know, we implement an investing strategy for each client based on your individual needs by diversifying among different asset classes such as stocks, bonds, real estate, etc. We do that so, over time, when one asset class zigs, others hopefully zag. Theoretically, that should help smooth the ride of each client’s portfolio. When the pandemic fear took over, however, bonds fell sharply just as stocks did, just as they did in 2008.

Fortunately, the Federal Reserve stepped in early to lower interest rates and purchase bonds, including corporate bonds, in order to infuse much-needed cash into the bond markets. That, and Congress’s legislation last week that will pump $2 Trillion into the U.S. economy to help support both individuals and companies, helped to stabilize at least the bond markets.

The VIX Index – often referred to as the fear index – uses S&P 500 Index options activity to gauge investors’ expectations of market volatility. The VIX reading for the week ending March 27, was 82.69, eerily similar to the 2008 high of 80.86. In 2008 the S&P 500 declined 37%. Through the week ending March 27, the S&P 500 declined 20.96%, much better than 2008’s full-year showing.

We do not know when the stock market sell-off will abate. As Bob predicted in early 2009, the stock market often recovers sooner and faster than does the economy as a whole. We also know that investors have endured such extreme volatility before and those that persevered were rewarded.

Thank you for your continuing confidence.