And The Beat Goes On

Each week I keep notes on the stories I may want to report on.  The types of things I write down include: economic data, corporate releases, interesting news, innovations and the like.  This week, as I sit down to write this email, I have a record thirty-one pages of notes, not much of which I really want to write about.  Unless you’ve been intentionally trying to avoid the news, you undoubtedly know the markets were on another roller coaster of a week.  Here’s what the Dow Jones Industrial Average did this week: Mon +1,293, Tues -785, Weds +1,173, Thurs -969, Fri -250.  We haven’t seen consecutive swings like this in a very long time and I’m sure for many, if not most, this market feels uncomfortable.  I won’t deny that.

However, as noted a few weeks ago, these types of pandemics typically resolve themselves in a matter of months, despite the uncertainty we all feel.  In times like these, investors often act irrationally, presenting great buying opportunities for those of us who are patient and willing to put up with the short-term volatility.  Insofar as the market is a forward-looking indicator of corporate earnings, much of the bad news is probably priced in at these levels.  We continue to look toward a recovery in the months ahead and are positioning portfolios for that eventuality. 

So, what did do well this week?  Relatively speaking, Kroger and Costco did quite well rising 12% and 9% respectively.  People are stocking up on items like toilet paper, water, and disinfectant wipes.  What else did well?  Utilities like Duke Energy and REITS like American Tower did well too, both rising almost 7% this week.  And let’s not forget fixed income in times like this.  For so many years you may have felt like fixed income was weighing down your portfolio.  Well, it is times like this that fixed income shines.  Total return bond funds such as the PGIM total return bond fund and the JPMorgan core bond total return fund have returned almost 5% this year.  In all, there are parts of a diversified portfolio that are doing well, relatively speaking.

Now let’s talk about these thirty-one pages of notes.  The CDC says to wash your hands for at least twenty-seconds.  Avoid shaking hands with people and yes, the coronavirus is spreading in the United States.  The Federal Reserve came out and cut rates 0.50% in a surprise move two weeks before its scheduled meeting.  Investors, analysts, pundits, and the Twitterverse believe there will be another rate cut of 0.25-0.50% soon.  Avoid conferences, large gatherings, sporting events, and airline travel if possible.  Gold hit a seven-year high on fear and uncertainty.  U.S oil production tops 12M bbl/day for the first time, at exactly the wrong moment.  OPEC is working hard to get members to cut production fearing an oversupply of up to 3M bbl/day and a commensurate drop in the price of crude oil to $41/barrel.  Trump attacks the Fed, Amazon announces deliveries could be delayed, and the Treasury Secretary, Steven Mnuchin, says there’s not enough interest for a 50-year Treasury Bond.

Okay, so here’s a potentially good piece of news.  If you haven’t refinanced your mortgage in some time, you might be surprised to learn that mortgage rates hit an all-time low.  As I alluded above, fixed income has done well, meaning a lot of people are pouring money into these instruments which are driving up prices.  Well, when fixed income prices go up, their yields go down.  As such, the 10-year Treasury fell to a historic low of 0.75% today with the 30-year not far behind at 1.30%.  Considering this, mortgage rates have fallen in lockstep.  A 30-year mortgage can now be had for 3.2% with no points.  A 15-year can be had for as little as 2.8%.  Mortgage lenders are gearing up for a tidal wave of refinancing.

In closing, I turn to those among us that are James Bond fans.  I have some bad news.  The latest Bond movie, which was scheduled to be released in April is being delayed until later this year.  With the spread of the coronavirus, it is assumed fewer people will go to movie theaters thus prompting the delay.  For those of us who love Daniel Craig, we’ll have to wait until November to see No Time to Die.  Now you know.

P.S. Daniel Craig is the best James Bond.  Convince me otherwise.

Bruce J. Mason, MBA