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March 12, 2020

With the equity sell-off dropping nearly 20% in recent days, we’re writing with our latest thoughts and updated forecasts for the economy. Events are happening quickly, and our current economic and market forecasts are different than even a few weeks ago. With the sudden evolution of oil-price wars this week, we could face an imminent recession; therefore, it’s important to reaffirm our allocations against current conditions and your financial-planning objectives. Below are more details on current conditions. 


We’ve forecasted that if the virus could be contained by the end of March, this would likely be a one- to two-quarter economic and market event. Now, as of March 12, it’s highly unlikely that the coronavirus will be contained by the end of the month. With an incubation period of 14 days and new cases popping up worldwide now from no direct contact, we’re looking at well into April before we have a clear understanding of the virus’s scope and a containment timetable. While the virus itself is not enough to curtail our economy long term, it will fuel market uncertainty while its fate lingers.  

Oil-Price Wars: A Recessionary Trigger 

Added to the coronavirus is the new oil-price war between the Saudis and Russians. What started only a few days ago has led to a collapse in crude oil prices. Since February 20, crude prices (symbol CL=F) have fallen 49.7%, including a 34% intraday fall this week. This price war has significantly escalated the chances of a recession happening this year compared to just one month ago.   

Quick Backstory: Last week, on March 5, OPEC+ (which includes both OPEC and non-OPEC member states) proposed a deal to curtail oil production in order to stabilize prices amid reduced demand from the coronavirus. Russia—an OPEC+ member and the third largest oil producer in the world—refused. Saudi Arabia—the second largest producer in the world—reacted by dropping crude oil prices and raising production. What has ensued is an oil-price war.   

Recession Trigger: This type of disruption can create a dramatic drag on the economy for several quarters. We saw this in 2016, when U.S. shale production led to increased supply and sudden price drops. Large numbers of people were laid off in a matter of weeks, and the trickle-down effect was significant. 

Today’s environment could be much more severe because we’re starting from a much lower price level than in 2016, and reduced global demand means oil prices will stay lower. The two biggest global economies, the U.S. and China, are slowing. China—the biggest global oil importer and second biggest economy—is weakening from the virus and its two-year trade war with the U.S.  

Oil-price volatility is not likely to resolve in a few months, and we expect that we’ll be in this volatile state until Q4. We’ll feel the economic impact for a minimum of one to two quarters. 

More important is the impact on earnings. In certain sectors, future earnings estimates are already lower, a result of expected profit reductions from the coronavirus epidemic. Oil’s diminished profits will lower earnings further. As we’ve written for the last year-plus, earnings have been the equity price backbone in our sustained all-time-high equity environment. With weak earnings, it could very well be the end of the bull market and economic expansion.  

A recession is two-plus quarters of negative GDP. With only a few weeks left, this quarter will likely post a positive GDP, so we won’t formally know if we’re in a recession until November or December. Since 1900 the 23 economic expansions have lasted 48 months on average—the 22 recessions, 15 months.1  

Not every recession will be like the last one, the Great Recession of ’08. In fact, the next recession could be quite mild. The combination of economic slowing, increasing unemployment, falling rates, and low-priced energy gives inflation no reason to rear its head. It’s possible we could wind down this business cycle and never see any inflation—a soft landing, so to speak, and highly abnormal. This environment would also curtail a quick recessionary plummet. 

Looking Forward 

Our primary custodian is SEI. You can rest assured that their best-in-class portfolio managers are actively managing our portfolios in these tumultuous conditions—striving for the best allocation of stocks and bonds to obtain your risk-and-return objectives. We continue to monitor both their performance and your financial plan to ensure we’re on track to pursue your personal financial goals.  

As always, we’d be happy to discuss our investment strategies in relation to current events and your personal portfolio. Feel welcome to contact us.  
To your fiscal health,


Kelly Crane, CFP®, CLU, CFA, MBA 
President & Chief Investment Officer 

1Source: JPM Guide to the Markets, data as of February 29, 2020 

Investment advice is offered through TrueNote Investment Advisors, Inc., a registered investment advisor. Heritage Capital is a dba of TrueNote. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.  

The economic forecasts set forth in the presentation may not develop as predicted, and there can be no guarantee that strategies promoted will be successful.

Stock investing involves risk, including loss of principal. 

Asset allocation does not ensure a profit or protect against a loss.