March 20, 2020
Dear MMBB Family:
As I write to you a second time this week, I want to first, communicate MMBB’s concern for you, your families, and your congregations. COVID-19 poses a considerable threat to our health and I urge you to follow the directives of government and health officials. Although many of the recommended steps and shutdowns require a tremendous shift in behavior, following them is key to controlling the spread of the virus. It is also a humble acknowledgment that we are all in this together. Know that your collective health and safety is in our hearts and in our prayers.
Markets generally don’t like uncertainty.
Each day brings major news on the investment front, and I am reaching out to you again to provide insights regarding the primary factors that continue to cause extreme volatility in the markets – namely COVID-19 and the oil price war between Saudi Arabia and Russia. Together they have created a dramatic downturn in the investment environment and greatly increased the probability of a global recession. Global financial markets have been severely negatively impacted (down over 25% since 12.31.19). Investor confidence is at or near record lows; this has significantly contributed to market volatility.
COVID-19, a disease caused by the coronavirus, emerged in late 2019 and has been declared a global pandemic. COVID-19 is a black swan event – something that is both a surprise and causes significant impact. This pandemic has created both external shock and a long list of unknowables, including the duration and the extent of COVID-19’s economic repercussions. Business disruption has been severe and material uncertainty remains, resulting in a monumental economic fallout. Although it is not possible to predict how long these conditions will last, it is fair to say that the depth, shape, and timing of recovery will depend on how quickly the disease can be brought under control.
The other factor which dealt a harsh jolt to the markets is the severe drop in the price of oil. There has been both demand-side and supply-side shock, which has led to the price collapse. On one hand, demand for oil has been significantly reduced due to COVID-19 and the economics of social distancing, which has curtailed most commuting and air travel. On the other hand, a significant increase in oil production (supply), driven by the oil-price war between Saudi Arabia and Russia, has compounded the negative impact on oil prices. Together, these factors have created additional market stress and resulted in oil prices dropping to 18-year lows, with oil sinking to less than $24 a barrel. Oil prices fell as much as 60% below where they were at the beginning of 2020.
What steps is the federal government taking to address the economic fallout?
There are multi-pronged government interventions that are taking place, including significant rate cuts, capital infusions, proposed economic stimulus measures given directly to individuals and businesses, as well as the proposal to backstop money market funds. While the impact of these measures is largely unknown, we are hopeful that these actions will offset and improve the current market environment.
What does this mean for your retirement accounts?
There are several critical factors to keep in mind when investing for the long-term.
• Even when markets are on the upturn, it is important to remember that market corrections are a normal part of investing
• Much of the correction we are experiencing now relates to uncertainty, but uncertainty is not a long-term situation
• Fear and uncertainty are almost never good reasons to change asset allocations if you are investing for a long-term goal like retirement
We understand that the recent volatility has caused concern for our members and we encourage you to reach out to MMBB’s Service Center and CERTIFIED FINANCIAL PLANNER™ professionals. We are here for you. If you have a shorter-term horizon and are planning to retire soon, we are available to review your plan with you. Every member’s situation is unique, and we will be glad to speak with you about your specific circumstances. You don’t have to figure this out alone. Call us at 800-986-6222.
In the days and weeks ahead, we pray for God’s strength and guidance for you and your families and those you serve.
Grace and Peace,
Louis P. Barbarin, CPA
Chief Executive Officer