Well, in case you’ve been out of the country or asleep on a white sand beach for the last month, it’s been a rough couple of weeks for the markets! Things are going crazy, the U.S. government goes to the brink of default before the parties can get together to raise the debt ceiling, banks are starting to charge fees to hold cash, and last Friday evening we hear that Standard & Poors has downgraded the sovereign debt rating of the United States to AA+ with a negative outlook. Treasury debt is now rated below the debt of Great Britain, Canada, Germany, France and Lichtenstein!
Since the beginning of July, the S&P 500 index was down 10.5%, the Dow was down 9.0%% and the Nasdaq fell 10.1%, and these results don't even include the 5%+ pounding the market is enduring so far today. This marks the worst string of losses since the Lehman crisis and effectively wipe out any gains for the year. Clearly the recent market momentum is anything but encouraging and media coverage of the markets hasn’t exactly helped. A recent story on Bloomberg called the selloff “a global rout.” So what’s driving this dismal performance? Well, there are any number of potential culprits, from the recent debt ceiling debacle in the U.S. to the worries of contagion in the EU periphery, to the slowing of the global economy and worries of a double dip recession (though depending on your industry you may be asking yourself when the recession ended).
Given this recent shock to our financial system, you may be hearing from your stakeholders: employees, suppliers, customers, not to mention investors and analysts. You might be hearing a broad range of concerns, whether they be worries over the performance of your Company to concerns over 401(k) plans, and although these concerns are never easy to address, we would offer a few points to ponder:
1) Stick to your knitting! When investors see red on their Bloomberg screens, they suddenly forget about relative performance, and every issuer is suspect. When fear dominates market sentiment and blood runs in the streets, investors ignore fundamentals and think only of short-term liquidity. They no longer ask whether the fundamentals justify a stock price, they only ask “How quickly can I get into cash?” During these times continued focus on driving operating performance, and enhancing long-term shareholder value become the keys to you success. Companies that focused on performance in the depths of 2008 fared the best as conditions eventually improved.
2) Remain calm. Do you remember the crisis in the fall of 2008? Back then it seemed like the world was coming to an end, the media dug up footage of soup lines in the 1930s to suggest where we were headed. Ultimately we survived, granted it was a tough market and a tough time to be managing a public company, but we survived and became stronger as a result of the experience. This time will be different, because this time we have the experiences of three years ago to give us a sturdy foundation for making it through another tough market.
3) Lean into the wind. When there is uncertainty, the companies that get out in front of investors (in a less crowded market) earn more attention and credibility. Remember the crisis in the fall of 2008? At times, it seemed like the world was coming to an end. The natural tendency during the most recent downturn was to pull back and do the minimum when it comes to communication and IR, which can exacerbate concerns and lead to a greater negative effect. There are benefits to remaining proactive in time of uncertainty.
Market turmoil can be tough to endure, it can make you question what you are doing and keep you up at night, but ultimately it is transient. It's the actions we take during these turbulent times that set the foundation for our success tomorrow and ultimately show the world the strength of our character and leadership.
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