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BCA Weekly Commentary 3/06/20


SUMMARY. This week marked another volatile week with extreme panic over the spread of the virus throughout the world with cases increasing in US, South Korea, Iran & Italy to name a few. In our prior weeks, we discussed that one of the gauges of fear or the ViX volatility index reached levels not seen since the financial crisis. Each time this index reached such heights it usually led to less volatility in the months ahead. With that said the market continues to be focused on virus headlines regarding the spread & deaths with seem likely to continue. However, within weeks the first of many drug trials will be reported. If these interim therapies and vaccine demonstrate progress it may mark the "peak fear" and bottom of the negative effects on economic growth.


INVESTMENT IMPACT. Conservatism still reigns across our model portfolios (equity levels generally lower than targets), however we maintain, the virus impact will be largely felt in 1H20 as economic growth resumes in 2H20. As a result, we have further INCREASED our equity exposure this week in our model portfolios significantly in high quality, value oriented high dividend stocks. In our growth portfolios we have even added exposure to technology stocks for the firs time since last Fall. In addition, we continue to cut our bond exposure given low yields opting to switch to higher yielding assets such as preferred stock which has lower volatility vs equities but higher yields vs bonds. We believe market volatility will continue UNTIL progress is demonstrated with trials with existing drugs or a vaccine break through. This maybe be pivotal in determining the direction of economy. Markets may care less on the timing of availability of such "cures" vs their efficacy. Our overall our view is the impact of the virus as temporary, pushing out growth into 2H20 as additional stimulus from central banks may mute its long term impact.


For more insights see our website and disclosures found there at BCA. As always contact us for further explanation of how these events can effect your finances.