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Whenever markets move far enough & fast enough to draw the attention of the non-financial press, investment advisors start to get a few more phone calls than usual. The US markets (stocks and bonds both, unusually enough) have been acting very strange lately — these “up 3%, down 4%” swings on the US stock markets have been making me queasy, and the idea that the interest rates on government bonds have dropped by about two-thirds during this time isn’t helping much. It seems that the weekend’s news has led to another huge drop for stocks this morning, causing the market’s “circuit breaker” to halt trading for the first time in years … and we’ve had some calls and emails.

Our clients have three basic questions when they call or write:

  1. What, exactly, is happening?
  2. How has it impacted my portfolio? And
  3. What should we do about it?



This is a big question. First, the numbers: The S&P 500 (an index which we often use as a proxy for “the US stock market”) dropped about 7.6% today and about 19% since it touched all-time highs on February 22. Global stock indexes are facing similar (in some places worse) declines. What’s behind this dramatic sell-off? I think that there are three key factors that have made the markets particularly erratic recently — politics, pandemic, and petroleum.

Politics: The last few weeks have seen turmoil in global political news. “Brexit”, Britain’s formal withdrawal from the European Union, was finalized at the end of January. That wasn’t a surprise, but it represents the end of an era, and of an uncertain couple of years. There are details to be worked out, but the economic impacts are already being felt across Europe. The Senate’s impeachment trial of President Trump ended on the 5th of February, when Senate Republicans voted to acquit. This reduced the uncertainty around impeachment, but may have emboldened him. And initial results in Democratic primaries have brought both clarity and disappointment, as it has narrowed the field quickly. In other words, every time we get an answer to one political question, whether in the US or elsewhere, we find a handful of new questions are raised. And the markets hate uncertainty.

Pandemic: The coronavirus outbreak has not, technically, been declared to be a “pandemic” yet, but it has already sickened more than 100,000 people around the world. In addition to the human cost, we know that it has already had a dramatic impact on the Chinese economy, and that its costs to economies around the world are growing as the virus spreads.

Petroleum: The price of oil dropped dramatically over the weekend and into Monday’s trading, tumbling by more than 25%. This crash appears to be the result of a price war between Saudi Arabia and Russia — with, perhaps, the intent to cause the US fracking boom to bust.

The oil price shock and growing coronavirus outbreak might bring global economic production to a halt, and 1 push us into a recession and a bear market. Political instability isn’t helping to inspire confidence from the markets. With today’s losses in the books, we can see the S&P down about 19% from its recent high points — though that only takes us back to the levels last seen in May of 2019. So, given where the markets are right now, what might be coming around the corner?

The analysts at CNBC put together a few facts (and great charts) for us, regarding the S&P 500’s trends since World War II: (A) When the S&P has dropped by more than 10% but less than 20%, it has had average losses of about 13.7% down, and recoveries have taken four months. We are well past that 10% drop right now — in fact, we passed it in a shorter time than ever before. And (B) When the S&P has dropped more than 20% from a high point, it has tended to keep going, declining an average of 32.5% percent from high to low and taking about two years to recover. These are the averages of previous corrections & bear markets, and each set of circumstances is different, but looking back might give us some ideas for what to expect.



We won’t be able to offer any definitive portfolio impact information regarding today’s trading until all the dust settles on our clients’ accounts overnight, but: I spent some time over this past weekend, reviewing the impact that the last couple of weeks’ erratic trading had on our client portfolios. I couldn’t review everyone’s accounts, of course, but I checked on a representative sample — and I found performance in line with our expectations.

Almost all of our clients have a broad mix of different sorts of investments in their portfolios — some stocks, sure, but also some bonds, some specialized assets (such as utilities or real estate), and at least a little cash. Our diversification process takes each of these basic asset classes and spreads the allocations further into sub-classes (and then into different management styles, and …), in an effort to manage risk by spreading investments widely. This has meant two things for our portfolios: First, our allocations to bonds and cash have helped hold portfolios together, since cash has been stable and bonds have risen substantially while stocks have dropped. And second, because our clients have a small-to-zero allocation to oil and gas stocks, the volatility of those stocks hasn’t hurt us. As oil prices and oil stocks continue to tumble, I believe we’ll be glad not to own them.



We need to think carefully before we consider doing anything; and even then, we should probably do nothing.

While this market action has been surprisingly swift and remarkably volatile, it hasn’t been unexpected. We’ve been concerned about the likelihood of a market correction for a long time — and we’ve been telling our clients that if there were to be some sort of non-economic shock it could throw us into a bear market. As the news around the coronavirus threat grows worse, and the tensions in the oil market increase, we’ll probably see continued volatility and additional losses. But that doesn’t mean we should leap into action, because we don’t — and can’t — know where to get out, what to do while we’re out, and when to get back in.

Part of the reason that we go through an extensive discovery process for each of our clients, and then establish Investment Policy Statements and review them carefully before we invest accounts, is that we want to make sure to set up a long-term plan that we can all agree on. We want to be able to look back at the IPS in moments when the market worries us, so that we can stick to our discipline, because we know that it will have the best long-term results. So if we did a good job of analyzing our client’s situation when we established ten-year goals for their portfolio, and have kept up with changes to significant aspects of the situation along the way, we can confidently stick with the plan. We knew there would be excellent years, and dreadful years, which will average out over time to a reasonable long-term return if we hold our course.

So — let’s not make changes to your portfolio, unless something vital and substantial has changed in your financial situation. What else can we do? Maybe there are things we can do to reduce the three sources of stress on the markets: contact our elected representatives, and vote in upcoming elections; prepare for the arrival of coronavirus in our area, in order to slow its spread, prevent contracting it, and care for those who do get sick; and work to “Decarbonize America and the World”, so that oil shocks won’t throw our global economy into disarray again.


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After an eleven-year bull market with relatively few significant downside surprises, we’re all watching the global markets and economy with increasing alarm. We are evaluating all our options, of course, and considering the wisdom of adding some special portfolio tools to try to smooth out the volatility. But our best tools so far have been diversification and calm discipline, and we’re not ready to give those up quite yet.

If you have questions about any of this, want to review your portfolio and Investment Policy Statement, or are interested in discussing a brand-new relationship with Horizons, please let us know. We’re happy to help!