Special Release - When Two Black Swans Meet
Over the past weekend, Saudi Arabia rocked global oil markets after the Organization of the Petroleum Exporting Countries (OPEC) and Russia could not agree on additional production cuts to combat low crude oil prices. Saudi Arabia’s action, to slash prices and increase production, caused Brent Crude, oil’s global benchmark, to fall 24% on Monday. The contagion from this decision rippled throughout global equity and bond markets, as investors abandoned risk assets into the safety of sovereign bonds.
This transpired while investors were already attempting to quantify the economic impact of the COVID-19 outbreak. The massive quarantines occurring in China and other parts of the world have been largely responsible for the weakening of crude oil demand. With the virus spreading globally, there will likely be a greater impact to economic growth.
The U.S. consumer has been the resilient factor behind domestic growth over the past ten years. As the spread of the virus dictates changes in social behavior (i.e., less travel and more self-containment), the impact here looms larger. There are still positives, namely lower interest rates, falling energy prices and low inflation. Lower interest rates make it more attractive for consumers to borrow money and there has already been a surge in mortgage refinancing activity. Falling oil prices are a benefit to consumer energy costs, but result in a mixed picture for credit markets and the shale economies of Texas and North Dakota. Low inflation is accommodative for consumer spending, as long as they remain employed. Lastly, there is the possibility of a fiscal stimulus package to help offset the expected changes in economic conditions.
Looking forward, the situation remains dynamic and we will continue to monitor information and economic statistics as they are released. At West Financial, we have designed our investment philosophy and processes to take into account the individual circumstances of each of our clients. This translates directly into any action we take regarding allocation, diversification, active management selection, and the use of individual stocks and bonds. We are also actively reaching out to our financial planning clients, to see if they would like to revisit prior plan projections, in light of market volatility. If you have questions or would like to discuss the positioning of your accounts or your long term projections in greater detail, please contact a member of your team or our financial planning department.
Also, we want to take a moment to let you know what we do on a recurring basis to ensure we remain fully operational in the event we are not able to access our primary location. We have worked diligently over the years to build and maintain our disaster recovery policy, conducting regular testing to ensure key personnel can access all systems and client accounts. Processes including account access, equity and fixed income trading, account rebalancing, money movement, and email access are tested thoroughly to make certain there will be no interruption to normal business activities.
In addition, we conduct periodic reviews of our business continuity plan, detailing key systems, personnel, processes, and instructions. Should our employees need to work remotely for any length of time, you can rest assured that we have processes in place to take care of you and your accounts.
West Financial Services, Inc. (“WFS”) offers investment advisory services and is registered with the U.S. Securities and Exchange Commission (“SEC”). SEC registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the firm has attained a particular level of skill or ability.
This information is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.
Certain information contained herein was derived from third party sources, and has not been independently verified. While the information presented herein is believed to be reliable, no representation or warranty is made concerning the accuracy of any information presented. Where such sources include opinions and projections, such opinions and projections should be ascribed only to the applicable third party source and not to WFS.