A First Foundation Blog

Market Action Update: Booster Shots

Global equity markets started 2020 priced for a goldilocks scenario: a low interest rate environment, accommodative central banks, a thawing trade war between the United State and China, and a global economy continuing to churn out slow growth a decade after the Great Financial Recession. Even as early macro events threatened investor sentiment (Iran/U.S conflict of 2020, the accidental shooting down of Ukraine International Airlines Flight 752, angst on the delay of the Phase One trade deal signing, Brexit, and President Trump’s highly publicized impeachment trial), investors continued to believe that markets would be able to thread the needle and the longest bull run in history would continue to run on. For decades the old saying use to be, “When America sneezes, the World catches a cold.” What most don’t know is that this widely used saying dates back to Austrian politician Klemens von Metternich (1773-1859) who, at the height of Napoleon’s reign, declared that “When Paris sneezes, Europe catches a cold.”  Literally and figuratively, China has sneezed and the world is catching a cold. To add fuel to the fire, Saudi Arabia reversed course over the weekend, slashing official crude oil prices after Russia refused to support a global supply cut to help stabilize oil prices after demand had dropped due to COVID-19. An oil price war was the last thing investors were hoping for to kick off the week.

This past week the Federal Reserve proactively tried to utilize a booster shot for global investors, surprising the market with a 50bps rate cut two weeks before their March meeting. Investors initially were satisfied before they quickly realized: rate cuts don’t cure viruses. Taking a look at Federal Reserve intermeeting rate cuts since 2001 shows that another round of rate cuts is highly likely, with the last four instances seeing 50bps rate cuts occurring at the next scheduled FOMC meeting.  While interest rate cuts don’t cure viruses, they do help stimulate economic growth and central banks are clearly drawing the line in the sand: they won’t allow the Novel Coronavirus turn into a credit event. We’ve seen volatility back to the levels during the Great Financial Recession, a credit event at its core, a time where we didn’t know if the banking system as we know it would survive and if the cash in our bank accounts was even accessible. Along with the Fed’s booster shot, presidential hopeful Joe Biden proved himself to be a real alternative to Bernie Sanders with his Super Tuesday showing. Sure doesn’t feel like a “win” as domestic equity markets remain in correction territory, but the S&P 500 ended up +0.6% for the week even as U.S. Treasury yields plunged to record lows. As of Monday morning, the entire U.S. Treasury yield curve is below 1% for the first time ever.

COVID-19 has most likely disrupted any modest economic growth that investors had planned for in the first half of 2020. However, given the levels of global liquidity, the coordinated responses by central banks, combined with likely fiscal policies (i.e. payroll tax cut, financial stimulus, or State and Local Tax (SALT) relief), there is a decent chance that economic growth is only delayed rather than outright canceled. Recessions tend to occur due one to three things: an overly aggressive Fed, commodity spikes, or extreme valuations. Currently the Fed is extremely accommodative, commodity prices remain low (specifically oil with the oil price war), and equity valuations are close to fair value. Just a reminder, bull markets don’t have expiration dates.

Booster chart 1

Using our investment framework as our anchor, we continue to utilize all of our investment resources to do our best to make good decisions for our clients: reaffirming investment objectives, balancing risk and return, as well as the fear of loss and regret on future opportunities. The past few Fridays bring back flashbacks to the Great Financial Recession, when short-term investors didn’t want to be invested over the weekend as they would be unable to trade on any potential news that occurred during closed trading hours. Until a vaccine is found or fiscal policy is instituted to soothe both Main Street and Wall Street, expect volatility to remain within +/- 2-3% days as normal. Recession odds have once again increased. It’s difficult being uncomfortable and the fear of loss can often times lead to bad decisions such as selling low and buying high. As noted above, we are constantly balancing both the fear of loss and “future regret,” regret of locking in losses or regret of not investing when great investments were available at a discount. Market timing investing is a very difficult endeavor, even more difficult in today’s markets where an estimated 80% of cash trades are being executed by algorithms without any human input (The Economist, October 5, 2019). I recently re-read Warren Buffett’s New York Times Op-Ed back in October, 2008 titled Buy American. I am. It still rings true today.

Booster chart 2

As always, we appreciate your confidence in us. Please don’t hesitate to reach out to your wealth advisor for questions. 


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 First Foundation Advisors), or any non-investment related content, made reference to directly or indirectly in this blog 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 blog serves as the receipt of, or as a substitute for, personalized investment advice from First Foundation Advisors. Please remember that if you are a First Foundation client, it remains your responsibility to advise First Foundation, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. First Foundation Advisors is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the First Foundation Advisors’ current written disclosure statement discussing our advisory services and fees is available for review upon request, or at  Please Note: First Foundation Advisors does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to First Foundation Advisors’ web site or incorporated herein, and takes no responsibility therefore. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Andrew Chan, CAIA, Managing Director of Portfolio Strategy
About the Author
Andrew Chan, CAIA, Managing Director of Portfolio Strategy
Mr. Chan serves on the investment team and is responsible for conducting investment manager research and portfolio construction. As a member of the investment committee, he provides market commentary and investment insights. Mr. Chan’s responsibilities include overseeing client portfolios, calculating risk metrics, conducting the rebalancing of client portfolios, and evaluating the selection of new investment managers. With over 10 years of wealth management experience, Mr. Chan has played key roles across various aspects of investment and wealth management. Prior to joining First Foundation Advisors, Mr. Chan was most recently a portfolio manager at U.S. Trust where, in addition to his daily responsibilities, he served on numerous internal committees including the investment manager committee, the portfolio model committee, and the strategic technology committee. He also served on the in-house strategic consultant committee reporting directly to the President of U.S. Trust. Mr. Chan is a graduate of the Wharton School Executive Program on Investment Management and holds a Bachelor of Arts degree in Business Administration from the University of California, Riverside. He is a Chartered Alternative Investment Analyst (CAIA). Mr. Chan serves on the executive board for CAIA Los Angeles and is the Interim President for the association. Read more