Q1 Market Update - AssetMark

First Quarter 2020

The Eye of the Storm

Jason Thomas, Ph.D., CFA

Chief Economist

AssetMark, Inc.

The story

The first quarter of 2020 was one for the record books. Governments around the world engineered a massive contraction in the global economy while working to slow the spread of the coronavirus. Equity markets did not yet understand the full impact of the measures, but knew enough to drive the fastest, most volatile bear market in history. After reaching an all-time high on February 19, the S&P 500 Index fell by 34% over the subsequent 23 trading days. In response to massive monetary and fiscal stimulus, the S&P 500 then experienced the sharpest three-day rally since 1933 ultimately finishing the quarter 16% above the recent low. A number of well-known equity strategists have opined that the bear market is over and unlikely to revisit the lows of March.

The reality

The global economy is in the early stages of an unprecedented contraction. But the contraction has happened so quickly that it is not fully apparent in official economic data. In the first clear sign, a (then) record 3.3 million workers applied for initial unemployment benefits during the week ending March 20. The following week (ending March 28) set another record, 6.6 million initial claims. Estimates for a peak unemployment rate range from mid-teens to twenty percent; that range is 40-85% higher than the highest reading since 1948 (10.8% in November 1982).

Based on assessments of social distancing mandates and corporate decisions already made, the economic contraction will be severe through at least the summer. There is no “light switch” to return economic activity back to prior levels. In fact, long-lead time activity (such as the Summer Olympics) has already been postponed.

The bottom line

Profound uncertainty remains about the path of the economy and the markets. The past two weeks have seen a steady stream of negative revisions to economic growth expectations. As the duration of the contraction extends, the question of valuation turns to a question of individual and corporate solvency and ultimately, because the slowdown is government-mandated, to a question of justice.

With yields on government bonds near zero, safety and diversification are harder to find. Clients need advice and support from advisors now more than ever.

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C20-15780 | 04/2020 | EXP 04/30/2021
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This report is for informational purposes only, is not a solicitation, and should not be considered investment advice. The information in this report has been drawn from sources believed to be reliable, but its accuracy is not guaranteed, and is subject to change. Investors seeking more information should contact their financial advisor. Financial advisors may seek more information by contacting AssetMark at 800-664-5345.

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Jason Thomas is also Chief Executive Officer & Chief Investment Officer of Savos Investments, a division of AssetMark, Inc. Savos Investments is a division of AssetMark.

AssetMark, Inc. is an investment adviser registered with the Securities and Exchange Commission.

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