M1 Finance Portfolio: Dividend Aristocrats 2020 - Week 23 (March 20th, 2020 - $240.13)

Week 23 - $240.13

Statewide shutdowns of all nonessential businesses have taken a toll on economic productivity. Shelter-in-place orders have slowed consumer traffic and the growing number of COVID-19 cases across the globe stretch worldwide healthcare capacity to its limits.

Total Report (Since October 11th, 2019)

Positive Performing Sectors
None

Negative Performing Sectors
1. Healthcare (-23.24%)
2. Consumer Staples (-23.97%)
3. Utilities (-26.35%)
4. Communication Services (-33.02%)
5. Materials (-40.88%)
6. Financials (-44.82%)
7. Information Technology (-45.09%)
8. Industrials (-46.24%)
9. Consumer Discretionary (-53.27%)
10. Real Estate (-58.29%)
11. Energy (-68.73%)

Weekly Report (March 20th, 2020)

Positive Performing Sectors
None

Negative Performing Sectors
1. Consumer Staples (-8.28%)
2. Healthcare (-12.70%)
3. Materials (-13.84%)
4. Financials (-14.70%)
5. Utilities (-17.12%)
6. Communication Services (-17.49%)
7. Industrials (-18.75%)
8. Energy (-21.06%)
9. Consumer Discretionary (-21.59%)
10. Information Technology (-22.22%)
11. Real Estate (-30.76%)

GICS Sector Performance Ratio - Balanced: From 0:11 (0.00%)  to 0:11 (0.00%)
 

Review
 

Global stock markets continue to fall as COVID-19 cases of infected rise and the death toll grows at an exponential rate. Healthcare facilities are already operating at maximum capacity, with essential equipment and materials facing a substantial shortage. Many areas are under a state of emergency, with orders to shelter in place and all non-essential businesses forced to shut down or face fines. A massive national crisis in the US has effectively shut nearly the entire economy down within a few months of the original outbreak, revealing the financial instability of many sectors.

Bear markets tend to be unique in the events that cause their initial selloffs. In this current bear market, it was the sudden and disruptive shutdowns of global economies that resulted in the economic and financial meltdown currently underway. Many businesses over the past decade have used whatever free cash was available to them to contribute to stock buybacks and thus inflate the value of their stocks that had no ties to their intrinsic value, saving little to nothing for emergency situations in an effort to convince investors of their business ventures' profitable prosperity. With a national emergency and an abrupt shutdown to nearly all economic activity, companies are finding themselves without cash to keep their business afloat. For years they had relied on a stable, consistent source of income through their consumers. Without a means to conduct business nor consumers willing to spend money, this has put companies in a dire situation, with a dramatic domino effect taking place.

These same businesses asked for loans to finance their lack of liquid cash, and with nearly every business asking for these loans, the banks themselves had run out of cash to lend. Without anymore cash to lend, businesses could become bankrupt and shut down permanently. To avoid this, the Federal Reserve had been pumping trillions of dollars to resolve the cash liquidity crisis. However even this was not good enough, as the companies could not afford the loan payments to begin with. This forced even further measures to be taken to ensure businesses stay afloat. Interest rate were cut to near zero and in some cases temporarily halted. While this may save some companies, the financial sector themselves rely on these loans to be paid back to maintain their own cash.

A further trillion-dollar stimulus plan is underway, earmarked for companies in financial trouble due to the economic shutdown and to the general public currently under orders to shelter in place. While in the short term this will keep a financial disaster from materializing, in the long term should this crisis continue, expect to see shortages of many goods as manufacturing is slowed and prices subsequently rise. It is likely some companies will not survive even with the bailout package and that some sectors will be dramatically hit.

COVID-19 would have stayed a small epidemic had it not been for the mismanagement of governments around the world. While some countries such as China and South Korea had managed to contain the spread through swift and decisive action backed by years of planning, training, and stockpiling, other countries had not done their due diligence. Many countries are operating on debt, consuming more than they produce. They are heavily reliant on outside trade to keep resource shortages at bay. This is why places such as Europe and the United States have been reluctant to shut down the economy despite the serious threat of the virus. They simply cannot afford to. The coronavirus pandemic would have had the same fate as past epidemics in the last twenty years had the systems been in place to prevent it. Yet none of the emergency measures were around to stop it because the policy of today is to keep the economy growing at all costs. The pandemic crisis has made light of that fact to the public once more.

Sustainability is paramount to any economy's health.Without sustainability, economic growth is worthless, as it can easily collapse as fast as it rose. The crisis may resolve itself within the next few months, but the lasting economic impact might continue for the next few years.

Last Week's Update (March 13th, 2020)

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