Q1 2020 Global Market Review

We hope this finds you safe and healthy and would like to wish you and your loved ones Happy Passover!

If you also speak Hebrew, we invite you to watch the recroding of the latest webinar we held, exactly about the topics in this review. The webinar included a review of the Israeli market in Hebrew and a review of the global markets in English.

Q1 Markets were indeed epic.

• The main US market (S&P500) started the year positively, with a wobble in late January, to rise to mid Feb by about 5%, and then fell precipitously 35%.
• Europe was -38% and United Kingdom FTSE -35%.
• The bond market followed with High Yielding bonds showing complete price dislocation and falling about 14%.
• Investment grade corporate bonds fell about 6%.

The speed of the fall is unique and will forever be studied by risk managers around the world. Our portfolios stood up to the crises very well and our conservative approach limited the pain. We acknowledge that this health and economic crises is a difficult time for all of us, but we do see light at the end of the tunnel.

Where do we go from here? How bad will the economic impact be? How long will the recovery take? Clearly, there are no obvious answers to these important questions. It will take time to work through, but in our opinion, very important positive steps have been taken. For example, the enormous policy intervention from both Europe and USA.

The key unknown is how long it will take to normalize. With the obvious conclusion, that the longer it takes the more challenging the economic impact will be. When this crisis started we, like many, were watching the daily numbers of confirmed cases per country. In just a few short weeks, we realized the inconstancies of the data from different countries. Due to differences across countries in testing capacity - testing result delay, who gets tested policies, and even how one country defines a victim - the underlying virus data points and the resulting market sentiment are not things that we can model with sufficient confidence, so we intend to maintain our conservative approach.

The good news is that the sudden and sharp crash of markets in March has priced in significant economic damage. It is generally accepted by all that there will be a short term severe recession, including unprecedented unemployment, there will be massive burden on the world's healthcare systems and a tragic and significant loss of life. In addition, it is understood by investors that certain industries will suffer a greater negative impact, e.g. travel, tourism, entertainment, and oil.

Therefore, we must ask ourselves what is not priced in? How much further down can the stock market go if it turns out companies cannot overcome this as originally anticipated? What would happen if Trump changed his approach and forced a USA lock down? What if summer does not slow down the infection rate significantly in the Northern hemisphere? There are many more potential things that could, and may happen, especially during April to July, but we expect a strong positive reemergence thereafter. Goldman Sachs chief economists predicts an annualized negative GDP growth of -35% for Q2 and a positive annualized GDP growth for Q3 of 19%. These are numbers we have never seen before and whilst numerical estimates may vary, the information is out there and the forward-looking market prices reflect this. We must get some comfort from this.

Moving forward, we feel we have done as much as we can to protect the portfolios for their given risk mandates and now our focus is on the future and the recovery. Asset allocation rules demand that we fill our risky asset bucket as soon as possible after the crash and start buying equity. However, given the nature of this shock, as a real health and economic crises, we are proceeding a little more cautiously than we would if it was only a financial crisis like the dot.com bubble of 2000. A full recovery from this will take time, and there will be significant up days and down days along the way. Uncertainty remains high. We remain optimistic that this too will pass.

The aforementioned information is not a substitute for personal Investment marketing, which takes into account the particular circumstances and special needs of each person. The views expressed in this Review should be considered as market comment for the short term for information purposes only. As such the views herein may be subject to frequent change, are indicative only and no reliance should be placed thereon. This Review does not constitute legal, tax or accounting advice, or any investment recommendation, or any offer to buy or sell financial instruments of any kind, and does not take into account the investment objectives or needs of specific investors. Although this Review has been produced with all reasonable care, based on sources believed to be reliable, reflecting opinions at the time of its writing and subject to change at any time without prior notice, neither Pioneer Wealth Management nor any other entity or segment within the Pioneer International Group makes any representations or warranties as to the accuracy or completeness hereof and accepts no liability for any loss or damage which may arise from its use. The writer and the company are unaware of any conflict of interest at the time of publishing the above commentary.