MARKET OVERVIEW

This week, we saw Wall Street’s ever-changing level of concern over the coronavirus swing dramatically negative, with the spread of coronavirus, COVID-19, beyond China, creating fresh uncertainty for the global growth outlook and sparked volatility in financial markets.

Most central banks had already hinted that Covid-19 was an emerging and potentially significant risk, but as the spread of the virus outside China picked up, so too did its negative market impact.

Wall Street’s main indexes tumbled for the sixth straight session on Thursday, resulting in a nosedive from record highs last week. The S&P 500 fell as much as 11.2% from its record closing high hit on Feb. 19 and the Nasdaq dropped 12.2% from its own peak putting Wall Street on pace for its worst week since the global financial crisis in 2008.

S&P Market Correction

Source: Factset, CNBC Research

Amid the heightened market volatility, investors flight to safety pushed down bond yields. The 10-year U.S. Treasury declined to 1.25% on Thursday, breaking the previous all-time low established in July 2016 following the Brexit vote in the U.K.

A HISTORY OF MARKET CORRECTIONS

While single day sell off’s of over 3% are relatively uncommon, it is important to note that market corrections are a normal part of longer-term market cycles and are particularly likely given the record high values within current equity markets.

There have been 26 market corrections (a 10% decline of a major stock Index from a recent 52-week high close) since World War II with an average decline of 13.7% with recoveries taking four months on average.

Market Corrections Since World War II

Source: Goldman Sachs, CNBC research

MARKET OUTLOOK

Predicting the ultimate scale and impact of the outbreak is near impossible. Despite the tragic loss of life, our base case is that this event will result in a “v-shaped” recovery for the world economy similar to the rebound witnessed following previous pandemics whereby we experience a sharp decline in economic activities, followed by a rapid recovery driven by pent up demand resulting in a less severe total impact from a longer-term perspective.

However, if the virus persists into Q2 there is the potential for it to pose a more substantial strain on global growth. Factory shutdowns around the world imposed in an attempt to contain the virus have the ability to impact company inventory levels around the world and ultimately weigh more heavily on global supply chains, global trade, and growth.

While volatility within the equity market has increased sharply in recent days as a result of the virus, monetary policy still remains supportive and looks set to remain this way over the longer term as the virus uncertainty persists. This low-interest-rate environment will help to facilitate a post virus market recovery.

Earnings forecasts for 2020 will need to be adjusted downwards in certain areas, but critically this should have a far less carry-through impact into next year and beyond – and as such we believe that the impact on fundamental fair values of the stocks we hold should be modest over the longer term.

HOLDUN ALTERNATIVES

At Holdun, we recognised that traditional asset classes were unlikely to deliver acceptable returns in a period of sustained low interest rates and muted economic growth. As a result, we create our alternative funds. These funds offer a broad range of exposure across the risk and illiquidity spectrum with little to no correlation to stocks, providing greater portfolio diversification, reduced portfolio volatility and higher returns.

With volatility escalating across equity markets and low interest rates now commonplace within the traditional fixed income space, diversifying your portfolio into our alternative funds offers an opportunity to both reduce risk and optimize returns.

Ginnie Mae Bond Fund: AAA rated bonds with zero credit risk offering consistent and stable yield in both increasing and decreasing interest rate environments.

Holdun Real estate fund SP01: Investing in medical detox centers battling the opioid crisis across the US, offering reduced market risk exposure along with double digit annualized returns.

Holdun Falcon 5 Fund: Sports betting Fund averaging returns of 29% a year over the past 10 years, with zero correlation to the market.

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