May Market Update
After a barrage of newsletters in late March and early April, we thought we would give you a reprieve for a little while, but we wanted to touch base again to give you our thoughts on what we are seeing in the markets lately.
The bottom of the market for the Dow was on March 23rd, when it closed almost 40% down from its peak in February. In our careers, we have gone through the tech crash, 9/11, and the Great Recession, but this was a whole new level of volatility to experience.
As of our sending, the Dow has rebounded 32% from its low point. Our hats go off to you for making the prudent decision to hang tight during this market volatility! This was another reminder that timing the market is extremely tough. By and large, investors have stayed the course. Morningstar recently released a study showing 90% of investors stood fast and didn’t make changes during the volatility.
The S&P 500 was also hard-hit during this period. Our friends at Blackrock put together this piece that compares the worst days, months, and quarters in the S&P 500’s history to the index’s performance one year later. Three days from March 2020 appear on that list, surrounded by many days that were followed by positive returns a year later.
Another lesson is that diversification matters and can help cushion these blows. Many of our clients were nervous when they called and saw that a major stock index was down quite a bit, only to learn that because they owned a more diversified mix of assets, their own portfolio was down far less.
While we can never know for sure, as we move forward from this point, we feel we have likely seen the bottom of the market already. However, we anticipate continued volatility as we look towards the “new normal” of the nation reopening. We see the coronavirus shock as closer to a large-scale natural disaster than a Great Recession, with a quicker drop and recovery that has more of a short-term impact.
Many clients have asked if we believe this period will lead to a Great Depression-style period. At this point, our answer is that we don't believe so, and we look to these major differences:
The Great Depression was a long, grinding downturn with 43 consecutive months of a shrinking economy. As we have discussed, we anticipate this being much more of a short-term economic impact.
During the Depression, unemployment was nearly 25% for years, and even after a decade it stayed at over 10%. In the coming months, we could see 20% unemployment on a national scale. As of April, it was at 14.7%. However, many of these are temporary furloughs as opposed to permanent job losses. In a recent poll of furloughed workers, Morning Consult found that 67% of these workers believe they will be rehired by their current employer. In addition, many of the industries that have laid people off come from the service sector, which is historically an industry that can get up and running far quicker than others.
One of the major contributors to the Great Depression was a collapse of the financial system and lack of strong economic intervention. The actions of Congress and the Federal Reserve should help cushion the blow, and banks and credit markets remain stable and well-funded with very little risk of failure. In addition, we know of numerous monetary and policy mistakes made during the Depression, like the implementation austerity measures and tightened monetary policy, and have a blueprint of what actually helps in those conditions.
In general, we remain cautiously optimistic about the short-term, but confident regarding the long-term. We know many Americans are struggling – there will be continued volatility, and days of good and bad news alike, which will influence the market movement. However, the stock market is a leading indicator, and should generally recover before the economy is back to full strength.
Lastly, we will be starting the process of slowly re-opening our physical office on June 1st. We are currently putting together our plans to ensure that our team and our clients stay healthy. We look forward to reaching out with our thoughts soon.
As always, please don't hesitate to get in touch if we can be of help during this challenging time.