Financial markets declined sharply today from a full-blown price war in oil and continued fears over the global spread of COVID-19. Oil prices were down more than 20% after OPEC and other oil exporters failed to agree on production cuts.  As a result, Saudi Arabia dramatically cut export prices, starting a global war over market share with Russia and other producers. Investors fled risk assets like stocks for safe havens and the yield on the benchmark 10-year Treasury fell below 0.5% for the first time ever. While not nearly as severe as the worst single-day drop, today’s price action in the S&P 500 ranks high historically.

During these uncertain and unsettling market periods, Peloton continues to pay close attention to your portfolio.  We remain committed to fundamental investment research, and we are monitoring the crosscurrents very closely for their future impacts on specific company fundamentals.

Our equity playbook during these periods is to not liquidate stocks indiscriminately. Rather, we are looking for opportunities created by reactionary selling to upgrade portfolios within sectors we like long-term, particularly healthcare and technology. We continue to believe high quality, well-capitalized companies with strong balance sheets will navigate this environment and ultimately benefit client portfolios. This last point acts as a touchstone during periods of heightened volatility: we invest in great operating companies – not just pieces of paper with no intrinsic value.

Much of our strategy for weathering these difficult markets was implemented prior to the start of any significant selloff. For clients with cash flow needs, portfolios are structured with some allocation to bonds, which provides predictable cash flow and a degree of stability. We continue to invest in high-quality fixed income for diversification, stability and liquidity. The capital preservation and income benefits also provide our client portfolios the ability to withstand some measure of temporary downside volatility on the stock side. With regard to stocks, we took a very negative stance on the energy sector 2018 and therefore have virtually no exposure to the hardest hit sector of the market.

Our macroeconomic outlook is cautious but not dire. Earnings estimates will need to be cut for the period during which COVID-19 is disrupting daily life. However, we remain constructive on solid, high-quality companies and their stocks and bonds. We believe the COVID-19 outbreak will eventually be contained or absorbed like those in the past, and that the long-term structural potential for the economy and well-positioned corporations is not indefinitely impaired.

We will update you with our evolving assessment as markets assimilate new data daily. In the meantime, please don’t hesitate to contact us if you have any questions on your investment portfolio.