Market Analysis Webinar Follow Up

March 23, 2020

Howard Capital Management’s CEO, Vance Howard hosted a webinar to discuss the financial consequences of the coronavirus. We felt we needed to quickly address the heightened concerns, actions we’ve taken and revisit our investing methodology.

What’s the HCM-BuyLine® signaling to do right now?

We have systematically pulled back on exposure to equities to reduce volatility and the emotional pull. We have reduced exposure to equities in our SMAs, Mutual Funds and the recommendations in our 401(k)/TSP Optimizer®. Emails were sent on March 10th to 401(k)/TSP Optimizer® subscribers to reduce exposure in their retirement plans. The markets are moving very rapidly, and they are continuing to weaken to levels close to 2018. We are sitting on a tremendous amount of cash and 1-3-month Treasuries, and we will be waiting and prepared to move back into the market once it turns back up.

Where are we with the coronavirus as a Nation?

The data from other countries is showing us that we may be reaching the peak of our outbreak here in the United States. See the chart below. As of Wednesday, March 18th, we are currently about 26 days into this outbreak and expecting the peak to be within two weeks. With that said, the next two weeks, the market will most likely be incredibly volatile. 

Case by Country

Source: Fundstrat, March 18, 2020


Once we receive the news that we may be hitting the peak, the market is most likely going to stabilize and find a bottom. That is what other countries have seen, as you can see in the chart below. 


WS Focus Count
Source: Fundstrat, March 18, 2020 

Why is this different from 2008?

As it stands right now, we are not in a financial crisis, but we are moving in that direction at a rapid pace. The difference between 2008 and now, is that the banks are very liquid, which was not the case in 2008 - they were imploding. In 2008, Treasury Secretary Henry Paulson sought a $700 billion bailout known as the “Bazooka,” which started to halt the selloffs of the 2008 financial crisis. We are expecting a large impact from the Federal Government any time; a large bailout/backstop plan is being discussed which could amount to $1.5-2 trillion. The FED lowered interest rates and pumped a lot of money in the economy last week; short term loans are also readily available.

What are we investing in right now?

We are not buying corporate bonds or long-term Treasuries at this time. We are currently holding a large amount of 1-3-month T-bills. We recommend staying away from the long-duration treasuries because of the volatility. We do hold some AGG and BND positions, which are broad, diversified bond indexes, inside our ILP Model as it’s designed for investors seeking a less active approach to investment management and have longer investment time horizons.

We’ve had no international exposure, we’ve had no oil and gas exposure, we’ve had very little exposure to small caps. The market is feeling the impact of these eye-opening months, but the silver lining is this soon will pass, and we have a huge buying opportunity. For the time being, it’ going to be uncomfortable and we need to maintain our composure and wait for the market to turn. Once it does, there will be a lot of opportunity to come out of this. 

Computerized Trading

We’re seeing a lot of computerized trading, and one piece of good news about the coronavirus could shoot this market up 10-20% in a short period of time. Playing the all or nothing game is very risky with computerized trading. This market is risky, but there’s also risk in not having some money invested in this market.

Final Thoughts

This won’t last forever, and you have to be willing to do what’s uncomfortable. These massive swings will start to calm down and hit a bottom sooner or later. There are a lot of stocks that are looking attractive to intermediate and long-term investors. The market is deeply oversold, and almost overshot. We’re most likely going to see a one-to-three-week rally soon.

We can’t look at this 6 to 12 days out, we need to look at this 6 to 12 months out. There are a lot of good stocks that are starting to bottom out now, which is a good sign. But again, we expect it’s going to be incredibly volatile in the next two to eight weeks. There are going to be some tremendous opportunities coming out of this. HCM has a solid track record of picking up steam when reentering the market and capturing gains when markets see upturns.

Conclusion:

  • The HCM-BuyLine® has systematically reduced a large amount of exposure to equities
  • Research above shows we are 2 weeks from reaching the peak of the virus if we are on the same track as other countries. Once we receive news of a peak, the markets should find a bottom and begin to stabilize. Until then, markets will continue to be very volatile
  • We are not in a financial crisis like 2008, but the Federal Government will be stepping in with a very large stimulus package
  • Moving forward: we are sitting on a large amount of cash which puts us in a strong buying position when the market turns positive
  • We are sitting in a large amount of cash and 1-3-month Treasuries  

Important Disclosure Information

Howard Capital Management is an SEC-registered investment adviser and only does business where it is properly registered or is otherwise exempt from registration. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. 

The 401(k) Optimizer® is a web-based tool intended to help clients invest in their employer’s 401(k) or similar defined contribution plan. Clients receive professional recommendations from the 401(k) Optimizer® and maintain total control over their personal accounts.

The TSP Optimizer® is a web-based tool intended to help clients invest in their thrift savings plan account. Clients receive professional recommendations from the TSP Optimizer® and maintain total control over their personal accounts. The goal is to reduce risk by taking proactive measures with company-sponsored retirement plans.  Changes in investment strategies, contributions or withdrawals may materially alter the performance, strategy and results of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment (including the investments and/or investment strategies recommended by the advisors), will be equal to past performance level, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or be profitable for a client's portfolio.

Our proprietary indicator, the HCM-BuyLine®, identified changes in the market trend. Buys and sells may or may not have occurred on the exact dates shown. These dates do not necessarily reflect transactions applied to every individual account. Also, certain products, custodians and portfolios may have a delay in execution. When the HCM-BuyLine® indicates a bull market, HCM then identifies the particular mutual funds, ETFs or individual stocks that we believe have the best return potentials in the current market from the universe of assets available in each given program and invests in them. When the HCM-BuyLine® indicates a bear market, HCM moves clients’ investments to less risky alternatives.

Not every HCM-BuyLine® buy and sell will result in a profitable trade. There will be times when following the indicator results in a loss. However, there have been situations in the past in which HCM reduced clients’ exposure to equities during market downturns by following an HCM-BuyLine® signal, thereby preserving capital. An important goal of the HCM-BuyLine® is to outperform the market on a long-term basis. The reason is the mathematics of gains and losses. A portfolio which suffers a 30% loss takes a 43% gain to return to the previous portfolio value.

The HCM-BuyLine® is a reactive indicator, not a proactive one. It will not catch the first 5–10% of a bull or bear market. Ideally, it will avoid most of the downtrends and catch the vast bulk of the uptrends. There may be times when the use of the indicator will result in a loss when we re-enter the market. Other times there may be a modest positive impact. When severe downtrends occur, however, such as in 2000-2002 and 2007-2008, it has the potential to make a significant difference in portfolio performance.  Naturally, there can be no guarantee that the HCM-BuyLine® indicator will perform as anticipated. Stoploss protection will not necessarily limit your losses to the desired amounts due to the limitations of the HCM-BuyLine®, market conditions, and delays in executing orders. It is not an actual stoploss order that automatically sells securities in the portfolio at a certain price.

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Howard Capital Management, Inc. (“HCM”), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from HCM.  HCM is neither a law firm nor a certified public accounting firm and no portion of the commentary content should be construed as legal or accounting advice.  A copy of the HCM’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request.  LASS.031820.Wbnr.032020   HCM-032020-5 

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