12 Mar 2020

Hello reader!

The Covid-19 virus has pulled the rug from under the stock market as it has witnessed a sharp and relentless decline this week. The small cap segment has viciously declined as the Russell 2000 index has plummeted over 22% in just 4-days. The ferocity of the decline can be gauged by the statistic that even major indexes like the S&P 500 and the Nasdaq Composite have fallen 16% this week. The selling has been so intense from the start of the day itself that most mornings this week have opened sharply lower.

The model portfolio has 3-positions and all in healthcare, which is typically a defensive sector. But even healthcare succumbed to intensifying selling this week dropping nearly 13%, though relatively less than the broader market and the smallcap index. The market environment has changed and the model portfolio exposure has to be reduced. 

It is also a reasonable expectation that the market after a non-stop slide is in such an oversold state that it can soon begin to level off and perhaps even attempt to bounce. The Federal Reserve's stimulus, and the first tranche of federal government stimulus, expected next week, should begin to add up and allow for at least a temporary respite from negative stock readings. With that in mind, we expect to begin closing out positions in the coming days unless something changes.

Sincerely,
Graycell Advisors

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