Amid the Coronavirus pandemic, we are facing more uncertainty than ever before. Many are concerned about their health, their loved ones, their jobs, and their ability to pay the bills. Many are also uncertain about the economy and how that might be affecting their investments. In hopes of providing some guidance during these uncertain times, I would like to share our team’s take on the current market conditions.
The Story
2020 began with a strong stock market and with optimism for the rest of the year. In February, the S&P 500 reached all-time highs, unemployment approached all-time lows, and interest rates remained low. However, as late February approached, news about the Coronavirus and its potential impact on the United States swept through the news cycle. As it became clear that many companies were going to shut down or be forced to run at reduced capacity, investors began to sell off.
The month of March turned into one of the worst months in stock market history. From its all-time highs, the market fell over 30% to its low point on March 23rd. Since then, we have seen some recovery. This is most likely due to the ways the government and the Federal Reserve have stimulated the economy. Congress has passed multiple relief bills including the CARES act which injected over 2 trillion dollars into the economy. In addition, the Federal Reserve reacted quickly and set interest rates to zero, making it easier than ever to borrow money. These acts of economic stimulus have propelled us to where we currently stand: in the midst of a recovery but with the worst in the rear view mirror.
The Diagnosis – What Happened?
So why did the stock market fall so much so quickly? The answer to this question is somewhat simple: because of the effects of the Coronavirus pandemic. The stock market is typically considered a “leading economic indicator.” This means that the market moves based off of where the economy is expected to be in the following months. When it started to become clear that companies would shut down and most of the United States would be stuck at home for an extended period of time, the market instantly reacted.
Outlook
Since the Coronavirus pandemic led to the economic downturn, the economy’s recovery will closely follow society’s recovery from the effects of the pandemic. Experts are predicting a slow “U” shaped market recovery that follows the timeline of our country’s return to normal. Breakthroughs like mass testing, therapeutic treatments, and potential vaccines could also positively impact the pace of our nation’s recovery. We expect volatility to remain in the short term, but we do not expect to revisit the market lows we saw earlier this year.
Opportunity
The current market condition provides potential opportunities for investors with a long time horizon. It is not often that the market is down over 10% from its all-time highs. Therefore, now is a great time buy into the market while stocks are selling at a discount. If you have been waiting for a good time to invest, or have money sitting on the sidelines, now might be a great time to start.
Any questions, visit our "Schedule A Meeting" tab on our website. We'd be happy to provide any guidance.
Stay well,
Alex
All investing involves risk, including the potential for loss. Indices are unmanaged and cannot be invested into directly. Past performance is not indicative of future results.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.