FIRST QUARTER 2020 COMMENTARY

DATE:    April 1, 2020

FROM: David G. Dietze, JD, CFA, CFPTM, President and Chief Investment Strategist
 

I.     Performance Update

Stocks got blindsided in the first quarter, turning in their worst performance since the depths of the subprime crisis over a decade ago.  The Dow’s return was the most negative since Q4 of 1987.  Markets came into the quarter bolstered by an easing of tariffs and trade tensions with China, an accommodative Federal Reserve focused on keeping interest rates low, and a strong consumer economy with joblessness at a fifty-year low.  However, the Coronavirus spread around the world, causing global commerce to freeze up.  With significant amounts of the population sheltering at home, investors braced for recession or worse.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The major market indices plunged over the quarter anywhere from 15% to near 40%, ending an eleven-year bull market. Over leveraged hedge funds, panicky individual investors, and large institutional investors rushed to the sidelines.  Safe havens included sovereign debt, primarily US Treasuries; interest rates on shorter maturities fell below zero, while the yield on the ten-year Treasury had its biggest interest rate decrease since 2011.   Gold got a bid, rising just over 4% in the quarter.  A worldwide dash for cash, meaning the US Dollar, pushed up its value by nearly 3%.
 
Only one Dow stock had positive performance in the quarter, Microsoft (MSFT), up by just a penny. Although no sector sported positive returns, technology, consumer staples, health care and utilities were relative outperformers, down “just” 15% to 18% for the quarter.  Technology stocks’ relative attraction stemmed from their strong balance sheets; the enforced hibernation by many reinforced the attraction of smart phones, online ordering, and streaming entertainment. Now, however, valuations are stretched.  Amazon (AMZN) and Netflix (NFLX) each trade at over 60 times earnings; what could go wrong? The other three sectors are considered less cyclical, and thus less vulnerable to the virus’ economic damage.
 
Energy stocks led to the downside as the price of crude had its worst quarter ever.  Fossil fuels slid on the supply shock of an apparent price war between major producers Russia and Saudi Arabia; investors later panicked, selling oil, as the implications of a virus-inspired demand shock became clear.  Despite prices at the pump dropping below $1 in some parts of the country, demand cratered as drivers were sidelined by travel restrictions.  Exxon (XOM) dropped 46%, Chevron (CVX) 40%. However, corporate insiders at energy concerns bet on a rebound as they bought up their shares at a record pace.
 
Financials were the second worst performers; plunging interest rates squeezed their “net interest margins” (the difference between the interest received on their loans versus interest paid out for deposits).  By the end of the quarter, lenders braced for possible defaults amid the fast weakening economy. Goldman Sachs (GS) and JP Morgan (JPM) each plunged 30%. 
 
Stocks put in what appeared to be an apparent bottom, perhaps quite temporary, on Monday, March 23, and headed higher for the next three days.  Despite a weak Friday, it was still good enough to count as stocks’ best week since 1938.  The turnaround was inspired by stimulus from both the Federal Reserve and Washington.  The Fed lowered interest rates twice between meetings, never before seen, causing the Fed Funds rate to return to subprime crisis levels.  Quantitative easing was cranked up, without apparent limitation, while bond purchases included municipals and corporates.  Meanwhile, Congress launched a $2 trillion stimulus package roughly equal to 10% of our GDP.
 
 
 
 
 
 
 
 

II.     Looking Forward

Long term we remain quite bullish.  The Republic has never failed to surmount a health scare, nor proved unable to rebound from a correction, bear market, or worse.  The question is the timing.  Unfortunately, as Dr. Fauci of the CDC has pointed out, the virus sets the timeline, not investors or Washington.  Near term, investors must brace for continued volatility with a retest or even plunge through the March 23 lows.  The news flow will be demoralizing.  On the health side, expect infections and fatalities to continue rising, while on the economic front brace for ugly news on layoffs, defaults, and business failures.  Yet, hiding on the sidelines carries risks, too.  Today’s ultra-low interest rates will fail to protect against the inflation that may well result from the current record stimulus.
 
 
Disclosure
SEC regulations require us to annually provide you with a copy of our Privacy Notice and a summary of material changes we made to our disclosure Brochure, our Form ADV Part 2A, with an offer to provide you the full Brochure. 
Point View Wealth Management, Inc.’s business activities have changed materially since the last Annual Amendment filing on 3/31/2019. The following is a summary of the material changes to our year end 2019 Brochure: 
We have amended Item 4 with respect to a change in principal ownership, effective September 2019    
We have amended Item 10 of the Brochure to provide affiliation and potential of conflict. We also provide additional information about the ability of our employees to participate in an incentive plan
We have amended Item 15 to reflect Custody 
If you would like to receive a copy of the full Brochure, please contact us at 908 598-1717. A copy of the Brochure and Privacy Notice is available on our website at www.ptview.com and additional information is also available on the SEC’s website at www.adviserinfo.sec.gov.  
Please direct any questions you may have regarding our Brochure or Privacy Notice to Karen J. Alvarado, our Chief Compliance Officer at 201 285-6178
As you know, Point View Wealth Management, Inc. continues to manage your investment assets in accordance with your most current designated investment objective.  Unless and until you advise us otherwise, in writing, of changes in your financial situation or investment objective(s), we shall continue to manage your assets in the same manner as we do currently.
Please advise us if you have not been receiving an account statement (at least quarterly) from the account custodian.
Please remember to advise us promptly, in writing, if there are ever any changes in your financial situation or investment objectives, or if you wish to impose and/or modify any reasonable restrictions to our management of your account.  Point View Wealth Management, Inc. shall continue to rely on the accuracy of information that you have provided.  
 
IMPORTANT: Point View Wealth Management is an SEC registered investment adviser and a subsidiary of Peapack-Gladstone Bank. This publication is only intended for clients and prospective clients residing in the states in which Point View Wealth Management is qualified to provide investment advisory services. Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product including the investments and/or investment strategies recommended or undertaken by Point View Wealth Management, Inc. (“Point View”) or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Point View. Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results.  It should not be assumed that your account holdings correspond directly to any comparative indices or categories. Point View is neither a law firm nor a certified public accounting firm and no portion of the commentary content should be construed as legal or accounting advice. 
No deposit investment products are not insured by the FIDC; are not deposits or other obligations of, or guaranteed by, Peapack-Gladstone Bank; and are subject to investment risks, including possible loss of the principal amount invested. 
 
 

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