The joint investment committee of Horizon and Impel Wealth Management met on the afternoon of April 6th. In addition to our regular committee members, we were happy to welcome Brian Toma, CFP, AIF, Managing Partner of Freeman
Heyne Toma Financial Advisors, to our meeting and to the committee. Brian's firm, with offices in Strongsville and Cincinnati, Ohio, recently joined the Horizon Advisor Network. We are happy to have his firm's experience and resources added to our team.
It has certainly been an historic and unprecedented month. We have seen a viral outbreak lead to the economy being put into a medically induced coma. This has led to great volatility and dislocation in both the stock and bond markets. Additionally, we have seen a fight over oil production between Saudi Arabia and Russia lead oil prices to drop by nearly 70%.
To offset the effects of these multiple phenomena, massive monetary and fiscal stimulus has been applied. The monetary stimulus has come from the Federal Reserve Bank lowering interest rates, first by half a percent in early March, followed by a full 1% rate cut a couple of weeks later. The Fed is also lending money to anyone who will take it and providing massive liquidity to the markets by buying all types of assets.
Additionally, fiscal stimulus has been applied as three different bills have been passed by Congress and signed by the President. The most recent providing more than $2.2 trillion of direct payments to individuals and support to both small and large businesses. While none of this has dampened volatility, it may help put a base under the economy and allow small businesses the opportunity to restart more quickly once the quarantine and social distancing directives are eased.
All of this led to the quickest downturn that we have seen in stock market history. From February 19th- March 23rd, the S&P 500 dropped by more than 31%. During this quarter, 68 stocks in the S&P 500 were down more than 50%, and 7 stocks within the index dropped at least 75%. At the same time, as interest rates dropped, high quality and government bonds rallied to all-time highs. However, lower quality and corporate bonds saw their prices drop as fears of an economic shut down produced concerns that corporations would not be able to meet their debt payments.
The committee believes that the market is in the midst of a bottoming process. This process could take a number of weeks and volatility will likely continue at an elevated level. It is important to realize that this is only the fifth quarterly downturn of more than 20% since 1945. In each of the previous four episodes, the stock market was higher 12 months later. This means that this could be a buying opportunity for people who have cash on the sidelines.
There are a number of steps that people can take now to help recoup losses and set themselves up for future growth as the markets and economy rebound. People could benefit from rebalancing their portfolios. This would allow them to sell bonds relatively high and buy stocks low, bringing them back toward their target asset allocation. It is also a good time to harvest tax losses in your non-IRA or retirement accounts. Please reach out to your advisor to discuss this if you have questions.
Over the last 12 months the committee had reduced risk and stock exposure within the portfolios. We had also counseled clients to raise one to three years' worth of future cash needs in their portfolios as markets hit multiple new highs over the last two calendar years. While all of these proved helpful to client portfolios and liquidity needs, nothing could have prepared us for the speed and depth of the recent downturn. We have tried to be very proactive in communicating with our clients during this time.
We know that you will be receiving your quarterly portfolio statements soon and that this could lead to some sticker shock. Please remember that the number on the page, representing the value of your portfolio, is merely a snapshot of a moving picture. If this is concerning to you, may we suggest filing the statements away unopened. We can pull them out and open them up a year from now and see how much life, the world, and the markets have changed.
We would also like to remind our clients over age 70 of a couple of recent law changes that impact their distributions from retirement accounts. First of all, the SECURE Act, which passed in late December as part of a budget deal, moved the age for required minimum distribution's from 70 1/2 to age 72, starting in calendar year 2020. Also, the recently passed CARES Act, suspended required minimum distributions for the current calendar year as the government does not want to force you to sell when the markets are down and take a taxable distribution. We also know that there are a number of people that are struggling in a greater way than many of us. To that end, if you have attained age 70 1/2, you are still able to make Qualified Charitable Distributions from your IRA. This allows you to make distributions to qualified 501(c)(3) charitable organizations with pretax money. This could allow you to help people and organizations in need while saving tax dollars at the same time.
The world has changed, but the commitment of our investment committee and the financial professionals you have entrusted to manage and oversee your investment assets and financial planning objectives has not. We are here for you; we are working overtime and we encourage you to reach out to us if you have questions or concerns. This too shall pass, and we will continue "Moving Life Forward" together.
