QUARTERLY MARKET OUTLOOK
Greg Carr, April 7, 2020
Quote for the Day: “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” -Warren Buffett
Summary: Stocks around the world have been in turmoil since mid-Feb. due to concerns over Covid-19 and its potential effect on the economy. We are not sure how long this will last. But it will end at some point and our economy and markets will recover. In the meantime, government policymakers have pledged to do everything they can to shield the economy from a deeper recession.
Review: Markets in Turmoil
After a positive start to the year, U.S Stocks (represented by the S&P500) have declined between 15% and 35% since Feb. 19, depending on the day. Markets like this can be challenging for investors, with some of the worst declines and biggest upswings since the great depression amid the economic uncertainty.
Economic data is evolving so quickly that standard economic reports and surveys are now outdated before they are published. But the little data that we have seen since “stay at home” policies started, such as unemployment and business closures, makes it evident we are already in an economic recession.
How long will this last and what will its effect be on the economy and stock market? We aren’t sure how long or deep this will go. It really depends on how long it takes to contain the virus. But we do know the stock market is already pricing in an average economic recession with its 15-35% pullback (the avg. recession pullback is about -25%).
If the virus lasts well into the summer it will have a longer lasting effect, with stocks potentially down another 15-20%. If the virus peaks out or is contained earlier, we could see the economy and markets rebounding within this year. It is encouraging to note that at the time of writing, several countries have passed their peaks and some are beginning to relax “social distancing” restrictions. And according to IHME projections (www.healthdata.org), New York should peak on 4/9, Louisiana and Washington have passed their peaks, and most other states appear to be “flattening the curve.”
In the meantime, the government has pledged to do everything it can to keep this recession from becoming more severe than it needs to be. We learned in 2008 that greater stimulus early on has a much greater effect. So policy makers have quickly dropped interest rates to zero, thrown $2 trillion out in stimulus, and started implementing substantial “QE,” quantitative easing. These actions will surely make a significant difference, with more to potentially come.
Please call us if you have questions about your investments or would like to discuss this article.
God bless, stay safe, stay positive. We’ll get through this.
Gregory A Carr MBA, AAMS®, CKA®
Owner / Financial Advisor
Accredited Asset Management Specialist