By: Dan Gensler, MSFS, CFP |
The Gensler Group Wealth Management Solutions
COVID-19, also known as the Coronavirus, has quickly spread around the world and just as quickly spread fear and uncertainty that sent stocks in the US into bear market territory. Last Thursday, the market saw one of its worst days in history and the largest one-day percent decline since the 1987 crash. The next day, the Dow Jones Industrial Average saw its largest-ever point gain. This type of fear and uncertainty has caused the volatility index to soar to levels unseen since the financial crisis in 2008. Yesterday, March 18th, nearly a week after the drop, US stocks opened lower after big gains on Tuesday. The Dow Jones Industrial Average closed below 20,000 and erased all gains since President Trump took office.
The markets, consumer behavior, and the actions taken by the Federal Reserve are impossible to ignore as an investor. What is being classified as a global pandemic has transcended beyond the headlines and is now being felt by Americans across the nation. Cases have now been reported in all 50 states, all major events have been cancelled, sports seasons have been postponed, schools and universities have been closed, travel restrictions have been put in place, many employees are being sent home to work remotely, planes are empty, and many shoppers are panic buying as store shelves are being emptied. So, what does this mean for the US economy?
As COVID-19 cases continue to grow and social-distancing is becoming actively practiced, expectations for economic growth and corporate profits continue to fall. As we head into the second quarter, the presence of an economic slowdown is a reality, and while the odds of a recession have increased, the US Government is trying to stimulate the economy.
On Wednesday, President Trump signed a Coronavirus Emergency Aid Package that provides paid sick and family leave for US workers impacted by the illness. In addition, it expands unemployment assistance, includes nutrition assistance, and increases resources for testing. Additionally, the White House has proposed sending as many as two $1,000 checks directly to all American adults. Efforts are already underway to put together a third, larger relief measure that could total $1 trillion.With unemployment expected to rise, this type of fiscal stimulus is needed to mitigate the economic fallout.
If we take a look back to a few short weeks ago before this three week stretch of steep market declines, the economic environment was healthy and improving in the US and around the world, with the unemployment rate near 50-year lows, solid job and wage gains, corporate profits poised to accelerate, and company balance sheets in excellent shape. This bodes well for a faster recovery on the other side and presents opportunities in a bear market that has largely priced in a recession already.
Fear is magnified when situations arise quickly and unexpectedly, such as with the recent events that have driven the outsized reaction from the markets. The potential positive from stocks falling into a bear market this quickly is that historically speaking, they have also tended to stage more powerful rallies off the lows. During this time of volatility, we advise all investors to remain calm, have an investment plan, and stick to that plan. The only thing worse than not having a plan is abandoning the one you have. The stock market has already suffered declines similar to those associated with mild recessions. That doesn’t mean stocks can’t go lower, it just means that the opportunities for long-term investors are getting more attractive.
While markets continue to face a crisis of uncertainty, we still have unwavering confidence in the long-term fundamentals and prospects for the US economy and corporate America. The US will prevail. If you have any questions about how the Coronavirus could impact your investments or retirement savings or need a plan of action during an economic downturn, give our office a call at (619) 554-1300 or visit us at www.genslergroup.com.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of March 19, 2020.
The Gensler Group is a Registered Investment Advisor, securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through The Gensler Group is a separate entity from LPL Financial.