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Weekly Market Update for March 13, 2020

by Jim Ulland

Normally, if the stock market moves 1% in a day, it is a very big deal.  This Thursday the market declined 10% only to recover 9.4% on Friday.  Keep your seat belt fastened.  Thursday, investors and program traders were desperate for cash and sold whatever they could.  This put a lot of pressure on stock prices.  Even our fixed income securities, which had been particularly stable for weeks, dropped sharply.  The energized reversal of Friday was triggered by an “over-sold” condition, which means there were a lot of bargains. Prices had gotten unrealistically low.  To start buying, bargain hunters also had to believe that we would get through the coronavirus without traumatic harm to the economy and that the government would “ride to the rescue” with a series of beneficial policies. That is exactly what happened just before the market closed on Friday.    The President announced a series of actions that restored confidence in the market and off it went.

Substantive news was also available on the coronavirus.  South Korea announce that yesterday, for the first time, more people were released from the hospitals (treated and recovered) than new cases of infection:  177 people released and 110 new cases.  Korea has had only a 1% death rate: 7979 cases with 70 deaths.  Not only is the death rate below expectations, but the infection rate also is quite contained.  The same news has come out of China, but few have confidence in Chinese data, which at times is manipulated.   We do know that the CEO of Starbucks just announced that hundreds of its stores in China had been reopened and that 85% of its total stores were now operating.  Apple announced that all of its stores in China were being reopened today.

In civil and criminal law, there is a general principle of proportionality, which basically says that the level of punishment should fit the seriousness of the crime.  If this was translated to journalism, the size and intensity of the story would reflect the impact of the news event.  So far this flu season, there have been from 22,000 to 55,000 deaths from the flu.  There have been 42 deaths from the Coronavirus.  Yes, there will be more and maybe a lot more, and the death rate of the virus is 1% vs. .1%. However, you never read in the news about the 20,000 plus who die each year of the flu.   Fears about coronavirus have infected the market.  What will calm the markets?  More news like we are getting from South Korea and China will help.  The announcement of a vaccine, even if not available for 6 to 12 months would be huge.  Having test kits flood doctor’s offices and health clinics to test all who have any symptoms would limit isolation to those infected rather than having large groups of people self-isolating.  And finally the fear will diminish when people realize that, yes, this situation will get worse and then it will be over.

What have we done tactically and strategically in portfolios?  For clients with equities, we have sold companies that were small or in a “turn-around” cycle.  We sold over half of our oil and gas companies.  Cash has been accumulating and waiting for market stability.

In fixed income, we have rotated into better quality and also accumulated cash.  The cash has recently been deployed into preferreds with depressed prices and higher yields.  The 10 Year Treasury pays about 1%.  Our preferred portfolios pay from 5-6%.  You can see why we expect the preferreds to be in high demand once we get a period of calm.  Please call if you have questions on your individual portfolio.

*The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Clients or prospective clients should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All clients are strongly urged to consult with their tax advisors regarding any potential investment. Past performance does not guarantee future results; there is always a possibility of loss.

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Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464