A Brief Update on Markets, Quarantines, and Other Things

Written by Chris Draughon

I want to see you achieve your financial goals so I spend my time making the complicated things simple. As the Director of Financial Planning I help our clients identify their most important financial goals and develop paths to get them there on time with room to spare.

April 17, 2020

Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.

                                                -Winston Churchill, November,1942

VIRUS UPDATE

We won’t spend a lot of time here, as you’re obviously getting a big dose of news as often as you care to look. As expected, the numbers for COVID-19 appear to be cresting in New York due to social distancing practices and proactive local and federal government mandates. This provides analysts with excellent data to forecast the expectations for other areas in the country as testing is dramatically expanded. The current forecasts suggest the Washington DC area should see its crest within the next week or two along with other major metropolitan areas on the east coast. The next week or two will tell us a lot. The fact that governors and the White House are arguing over time frames for a gradual re-opening of the economy is a good sign. Keeping our fingers crossed. There are better times ahead.

ECONOMIC UPDATE

When governments around the world simultaneously put their economies in an induced coma, the result is a global recession. (This should come as no surprise. We are undoubtedly in one now.) As armchair economists, this is a remarkable time. Never before in history have world leaders deliberately engineered a global recession. In a typical recession, governments are playing catch up to try and restore economic growth. In this instance, they actually caused it. As such, they should be able to “wake up” their respective economies more quickly with proactive and deliberate fiscal and monetary tools. The good news – if you can call it that – is the current scenario suggests the US economy could come fully back on line sometime in the summer, and we may begin to see expansion again by Q3 as people are rehired, travel ramps back up, and trade starts up again. Q4 should show continued improvement if all this remains on track. Time will tell.

ON MARKETS

How much of this economic forecast is currently factored into stock markets and prices is a moving target. Certainly, markets are anticipating these negative reports to a degree. But as news comes in, markets will digest them and react accordingly. We fully expect the daily volatility – both up and down – to continue for the near term. As the situation improves gradually, we should see markets settle down a bit. But as to the question of “is the worst over for markets?”, opinions vary widely. One school of thought is that markets will re-test their lows of late March as all the bad news comes in. (This would mean another leg down of about -15% from today’s levels.) Other “experts” suggest that markets have probably made their bottom and will bounce around at these levels and then move upward before the recovery actually begins. We are quick to remind readers that we don’t predict short term market direction. But we will share these thoughts:

Three weeks ago at the market lows, the Dow was off -34% YTD and the S&P 500 was down -30% YTD. As of this writing, the Dow Jones is off -16% YTD and the S&P 500 is down about -14% YTD. So markets have recovered roughly halfway back to even from their lows. This tell us that markets are anticipating the drastic reduction in corporate earnings to be a short-term event, and the massive fiscal stimulus to blunt the recession. Going back to our 2008 Playbook, these current levels could be a tad optimistic. What are we saying? Just that investors should be prepared for more temporary moves as the markets try to digest the news as it unfolds. Regardless of how it plays out, remember – it’s all temporary anyway.

Two final thoughts: First, remember that markets are forward-looking. They begin to recover before recessions end. Second, the mini-bull market we experienced a few weeks ago are a stark reminder that investors must strap in for the ride if they expect to reap the benefits of a recovery. Keep standing fast.

On a lighter note, people seem to be adjusting to the current normal. Walmart’s CEO noted that the early shortages in hand sanitizer and toilet paper are being replaced by a run on nail clippers and hair dye. Neighbors are exchanging puzzles with one another. Happy hours are being held on-line. Wine sales have skyrocketed. People are adapting. We look forward to the day when we’re looking back on these strange times instead of living though them. It will come. Until then, be patient. Be kind to people. And remind yourself every morning when you wake up, we’re one day closer to getting back to normal.

Call us if you need us. We’re still here.