Broker Check

Grappling with the Coronavirus

May 26, 2020 Update: Market Insights

Upbeat comments by the Federal Reserve Chairman and more signs of an economic turnaround combined to help fuel a powerful rally in the stock market last week.

The Dow Jones Industrial Average rose 3.29%, while the Standard & Poor’s 500 advanced 3.20%. The Nasdaq Composite index climbed 3.44% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 3.87%.1,2,3

Stocks Cheer Fed Support

The markets surged higher to open the week, buoyed by a Sunday night “60 Minutes” interview with Fed Chair Jerome Powell, who said that the Federal Reserve would do everything necessary to support economic recovery. Rising oil prices and more states lifting restrictions added to the overall improving investor outlook.

After a day digesting those gains, stocks moved another leg higher on strong earnings from big retailers and growing optimism over the global economic recovery. Stocks drifted in the final two days of trading as investors worried about heightening tensions between the U.S. and China.

Different Views on Economic Recovery

Treasury Secretary Steven Mnuchin and Fed Chair Powell testified last week before the Senate Banking Committee, providing Senators with two different views of the nation’s economic outlook.4

Secretary Mnuchin suggested a wait-and-see approach before moving ahead with additional fiscal measures. He wants to pause new spending in order to first assess the impact of the already-approved stimulus program. He believes that the economy will experience a “V-shaped” recovery.5

Fed Chair Powell, on the other hand, expressed worries that waiting too long for additional fiscal measures may hamper the fragile economic recovery. It was the third time in a week that the Fed Chair suggested more federal spending is needed to help the economic recovery.6

Final Thoughts

One of the challenges of assessing the U.S. economy using certain government reports, like the consumer price index or the employment report, is that they are considered “lag indicators.” Lag indicators provide good insight into where we’ve been, but are less helpful in looking at the current state of economic activity.

Looking at some “real-time” data can help investors better assess the here-and-now. For example, gasoline deliveries are trending higher, consumer confidence appears to have stabilized, and airlines are seeing more bookings. Even the supply of toilet paper seems less of a concern these days, with Google searches falling to near normal levels.7,8

THIS WEEK: KEY ECONOMIC DATA
Tuesday: Consumer Confidence. New Home Sales.
Thursday: Jobless Claims. Durable Goods Orders. Gross Domestic Product (GDP).

Source: Econoday, May 22, 2020
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.

THIS WEEK: COMPANIES REPORTING EARNINGS
Tuesday: Autozone (AZO)
Wednesday: HP (HPQ), Workday (WDAY), Autodesk (ADSK)
Thursday: Salesforce.com (CRM), Costco (COST), Trip.com (TCOM), Okta (OKTA), Dollar General (DG), Dell Technologies (DELL), VMware (VMW)

Source: Zacks, May 22, 2020
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame, and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.

1. The Wall Street Journal, May 22, 2020

2. The Wall Street Journal, May 22, 2020

3. The Wall Street Journal, May 22, 2020

4. The Wall Street Journal, May 20, 2020

5. The Wall Street Journal, May 20, 2020

6. The Wall Street Journal, May 20, 2020

7. MarketWatch, May 20, 2020

8. MarketWatch, May 20, 2020

March 26 update: Coronavirus and the markets

For the third consecutive week, the markets began with a Monday sell-off followed by a Tuesday bounceback. All eyes were on both monetary and fiscal stimulus, and early in the week the markets viewed both with disdain. However, that changed as the week progressed.

From a monetary perspective, the Federal Reserve (Fed) took some extraordinary steps – colloquially called its “bazooka” moment – announcing the removal of caps on its purchases of Treasury bonds and mortgage-backed securities, and that it would purchase corporate bonds for the first time. While supportive in concept, the markets initially viewed this negatively, believing that the Fed may be running out of ammunition. However, this sentiment changed on Tuesday as investors began to see improving liquidity in the markets and, thus, everything from municipal and corporate bonds to equities performed very well. The Dow Jones Industrial Average was up more than 11%, its strongest single day percentage gain since 1932.

On the fiscal front, the week began with investors hoping Congress would reach a deal on a massive stimulus plan to support those impacted by the coronavirus. Negotiations stalled out on Monday, but that changed Wednesday morning when the Senate came to a bipartisan agreement for a $2 trillion stimulus package. While yet to be voted on by both houses of Congress and signed into law by the President, the proposed package consists of direct payments to individuals, small business loans, and unemployment insurance benefits.

The amount of monetary and fiscal stimulus being pumped into the economy is unprecedented. While the economic impacts of the coronavirus will likely be damaging, government entities are doing everything in their power to bridge the economic gap until the crisis passes. Nevertheless, wide day-to-day market swings can be disconcerting for an investor. Please do not hesitate to give me a call if you have any concerns about your current investment plan.

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In your investing lifetime, you may only see a situation like the recent novel coronavirus (COVID-19) a few times. This is a circumstance where complete candor is necessary. The truth is that we can’t yet gauge the full economic impact, and by the time we can, the volatility may have passed.

It’s important to remember that, in terms of market declines, the recent drop isn’t unprecedented. In fact, in the last six day-to-day declines of 3% or greater, the market rebounded higher a month later. Past performance is no indication of future returns, and it’s uncertain whether history is a good teacher in this instance.1

Markets Have the Virus

Right now, markets are reacting to the news because the outcome is unknown. In a way, COVID-19 has “infected” markets all around the world. In times of market uncertainty, some traders believe the best approach is to sell. Fear is driving decisions. Nobody would blame you if this uncertainty gave you a bit of
anxiety, as well.

You Don’t Buy Snow Tires in a Blizzard

By working together to develop an investment strategy that fits your risk tolerance, time horizon, and goals, we have been preparing to weather turbulence. When a blizzard hits, the people who already own snow tires are usually happier than those venturing out into the cold, hoping they’re still in stock. In the same way, it’s generally best to make decisions during periods of low market volatility. We’re in the middle of the storm right now.

Here to Support You

This may be the time you need a trusted financial professional most. During most volatility, we advise you to “Be a long-term thinker, not a short-term worrier,” and that generally proves to be the best course of action. In times like this, however, it’s easy to question conventional wisdom.

Remember, we are here to help you and your family during this time. Whatever decisions you make, please allow us to support you through them. Feel free to reach out to our team with any questions or concerns.


1. wstreet.com, February 27, 2020


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