One of our managed strategy partners through SEI, City National Rochdale, has released some insightful market commentary about our current market trends. Some highlights:
- The recent stock market sell-off appears to have as much to do with overly optimistic market sentiment, as it does from renewed concerns over the spreading coronavirus.
- Market complacency has been high, particularly over the impact on global/U.S. growth and earnings estimates. Complex international supply chains are being put to the test; with the virus representing a massive global supply shock.
- Nevertheless, our base case continues to be that the impact will be manageable for the US, and a little longer lasting on Asia/European economies. Admittedly, that base case is being tested with new infections appearing in places previously thought unlikely, and growing public fears which may impact spending and investment decisions.
- Containment is key. If governments can contain the virus, and it follows a pattern similar to past epidemics, we believe the effect on markets could be relatively short-lived. We are encouraged by the decisive action of policymakers to date.
- It’s not yet time to add risk. The pullback in equities is creating the potential for attractive buying opportunities, but further downside is likely as markets begin to quantify the virus’s impact on global sales and supply chains. We quantify our reasonable worst case as a “garden variety” recession, with implications noted herein.
- Stay disciplined & stay invested, market volatility is normal. While we’re watching the situation closely in case we need to adjust course, our late cycle playbook has constructed resilient portfolios of quality, durable assets to weather storms such as these.
