Update on Current Market Volatility

Looking back on the last two months shows the extreme volatility we have seen in stock and bond markets globally.  We wanted to update you and share our thoughts.  From the market peak on February 19 through March 23, the S&P 500 index fell 34%, the fastest decline in history.  This index continues to be one of the best-performing out there as small-cap and international indices fell more.  If you had a $10,000 portfolio invested all in stocks, it would have fallen to $6,600.  This is painful, and the larger your portfolio, the more painful as people relate more to dollars than percentages.

A typical reaction is to want to sell when this happens and wait until things get better.  We can tell you from our decades of experience, that rarely works.  If you sell, you may have some comfort in knowing you have stopped the hurt.  If the market continues to fall your decision is validated.  But these two things combine to make it very difficult to get back into the market, as there will always be bad news that prevents you from buying back in even as markets improve.  If the market goes back up, you will also have difficulty getting back in because you will want to wait until stocks get cheap (where you sold) again.  Many people who sold their stocks in the Great Recession of 2008-2009 never got back into the market or missed a lot of opportunity as they waited for things to get better. 

Last week, from Tuesday through Thursday, the S&P 500 index rose 17.5%. The news outlets touted that was the best three-day move since the 1930s.  The $10,000 portfolio that had dropped to $6,600 would have increased to $7,775, which would still be 22% from its original value.  This is a great illustration of how percentages work.  If a $10,000 investment falls by 50% to $5,000, it needs to increase by 100% to get back to $10,000.  The news also highlighted what is known as the fear of missing out (FOMO).  What if that was the low?  Do I need to buy?  Given the volatility and news streams, one could also reasonably ask, was that the high?  Is this the Great Recession II or worse?  Do I need to sell?

The market is reacting to the spread of the coronavirus and energy prices.  The range of potential outcomes is extremely large, which is evident in the huge increase in market volatility.  We have seen well-thought-out arguments to be bullish and bearish.  To briefly summarize, the bull case seems to rest on a relatively brief (2-3 months) shutdown of the economy with recently announced stimulus that gets us through the downturn.  Returning workers and pent-up demand drive economic activity higher, and things return to normal by year-end.  When you hear “V-shaped recovery”, this is what they are describing.  The bear case, simplified, takes the severity of the virus and the fallout from energy prices, amplifies them and then increases the amount of time it takes to recover.

Obviously, we want to be optimistic, but we cannot rule out less favorable outcomes.  On the positive side, we would note the massive amount of stimulus.  The package that passed is estimated at $2 trillion and comes on the heels of the Federal Reserve’s interest rate cuts and massive quantitative easing.  Regardless of your point of view on what is in the package, this is an incredible amount of money that will help people transition through this crisis and provide economic stability in the near-term. We fully expect economic numbers to get worse before they get better.  We need to remember that markets look forward, and you don’t want to wait for good news as prices will reflect them.  Walter Deemer, who spent 50 years on Wall Street as a market analyst says, “When the time comes to buy, you won’t want to.”

The incredible amount of negative news today (and the lack of college baseball to offset it) certainly can prompt an investor to want to take some action.  A large amount of the assets we manage are in mutual funds whose portfolio managers we respect.  They have significant experience, credentials and investment track records.  Their job is to actively find the best investments they can on a daily basis.  Market volatility like we have seen recently can cause the price of individual stocks (and bonds) to fall out of line with their underlying value. 

This is not a recommendation, but an illustration:  If I am a manager of a stock fund, McDonald’s may be on my list of potential companies that I want to own.  The price of McDonald’s stock may have been too expensive when I looked earlier this year.  Recent market volatility has caused the stock to fall from $215/share to $130/share, and it currently trades at $159 (see 1-year chart below).  Price changes the attractiveness of the investment.  We know that in the short-term (3 months,  6 months, 1 year?) business at McDonald’s is going to be negatively impacted, but does the current price reflect that and what do we think the stock will be worth 1, 3 and 5 years from now?

We don’t have any insight as to whether this market decline is over.  If markets continue to fall, as investors, we want to view market volatility as investment opportunity.

Doug Muenzenmay

Doug Muenzenmay

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Sissy Moreland

Client Services Trading

A graduate of Mississippi State University, Sissy joined Medley & Brown in 2017, but her career goes all the way back to 1990 when she was the merchandise director for four years at Phi Theta Kappa. She was also Customer Service Manager and Marketing Development Manager at Crystal Springs Apparel from 1994 to 2005. From 2005 to 2017, she was Manager of Sales Administration at Skyhawke Technologies. Thanks to her considerable operations and administrative experience, Sissy oversees trading and assists with most back-office operations for the firm. Staying so busy at work requires Sissy to recharge her batteries outside the office from time to time which she does by running, reading, enjoying a leisurely brunch, and watching the Saints play football.

Beth Braswell

Client Services Coordinator

Beth spent four years in the investment world before joining Medley & Brown in 2004 as our operations coordinator. She and her husband Robbie are busy parents to identical triplet daughters, so not surprisingly, some of Beth’s favorite things to do are napping and relaxing on the beach when she actually finds the time. Beth also enjoys taking short walks to the pool, attending concerts, and going out of town for long weekends. Beth loves her Mississippi State bulldogs and currently has four dogs, three cats, and three grandcats because having three children simply isn’t enough. No wonder her operational skills are so exceptional.

Doug Muenzenmay, CFA, CFP®

Senior Advisor   |   Principal

When he’s not enjoying the outdoors or attending his children’s school and sporting events, you can find Doug studiously researching investments for his clients. His career began in 1991 after graduating from the University of Iowa with a bachelor’s degree in economics. He spent 17 years in trust investments at three different banks before joining Medley & Brown in 2010. Doug also got his MBA from Mississippi College and served as an adjunct professor in finance there from 2007 to 2013. Married to his wife Sharon since 2001, Doug is a Chartered Financial Analyst (CFA), Certified Financial Planner (CFP), and a board member of the CFA Society of Mississippi.

Eddie Carlisle, CFP®

Senior Advisor  |   Principal  |  Chief Compliance Officer

Eddie’s extensive education includes a B.S.B.A. in accounting, with special distinction, from Mississippi College in 1994, along with a J.D. from Vanderbilt University and LL.M. (Master of Laws) in taxation from the University of Florida. But it’s what he’s learned outside of school and work that really stands out. He’s an Eagle Scout, which taught him a great deal about honesty and hard work from an early age. He learned even more earning black belts in Taekwondo, Hapkido, and Hanmudo. Oh, and he studies the Korean language in his spare time as well. Additionally, Eddie serves as an adult leader for Scout Troop 164 in Madison. He is a past board member of Hope Hollow Ministries, the Central Mississippi Down Syndrome Society, and the Mississippi Corporate Counsel Association. Eddie is currently a board member of the Woodward Hines Education Foundation. He enjoys spending time with his wife, Sarah, and their three children—Andrew, Caroline, and Emma. 

Julius Ridgway

Senior Advisor   |   Principal

Judging from his background, you’d think investments and other financial matters were all Julius cares about. After all, he has two decades of direct investment experience and spent the previous ten years involved in banking and real estate. Julius also received a masters degree from the London School of Economics in 1998, an MBA from Millsaps College in 1993, and a history degree from the University of Mississippi in 1990. But his true passions include driving sports cars on racetracks or twisty mountain roads, running ultramarathons, and taking road trips with his wife and son. He’s worked here since 2002 as a Chartered Financial Analyst (CFA) and member of the CFA Institute while also serving as an adjunct instructor at Millsaps College and board member of New Stage Theatre. It takes major dedication to tackle all these responsibilities—sort of like training for all those long distant runs—but Julius enjoys every minute of the grind. And when it’s time to slow down, Julius finds the best way to clear his head is taking long hikes in the mountains on all those road trips.