1ST QUARTER EQUITIES
Equity Market: The market was strong in the first six weeks of the year, continuing the bullish trend seen in most of 2019. Then the coronavirus panic hit as business around the world came to a standstill. The selling was widespread and indiscriminate. Investors fled from stocks, commodities, and emerging market debt. The rarely used mechanisms to halt trading across the equity markets were invoked on several days when the market seemed gripped by panic.
The Dow Jones Industrial Average fell to 21917.16 by March 31 and was down 23.2% for the quarter. The S&P 500 ended at 2584.59 – a decline of 20.0%. The Nasdaq Composite index slid to 7700.10 and was down 14.2%. The Russell 2000 index ended at 1153.10 for a quarterly decline of 30.9%
Preferred Equities: As indicated, we are confident that our current portfolio of U.S. companies is strong for the long term. But we always look for selective buying opportunities. That goal is a special challenge now. Some stocks have done well in recent weeks serving particular needs in the pandemic. Examples would be certain biotech and consumer staple companies. The S&P 500 had 30 stocks that closed higher in the quarter. While “hot” at the moment, those companies may fall back when the broader market recovers.
Thus, our focus is on companies that can do well in both the short-term period and in a longer time frame. We want fundamentally sound companies with reasonable valuations and that pay dividends. In that context, we are favorable to consumer staples, health care, and mature technology companies.
We are inclined to U.S. companies. Compared to other countries, the U.S. is better prepared and more diversified to support a faster financial market recovery. We are far less optimistic about Europe given its mixed response to the pandemic and the previous Brexit issues. We are somewhat more positive on Asia, but the news of China’s suspicious reporting on the pandemic is concerning. On balance, we are limiting our international exposure.