Guidance Wealth will be closed Friday, April 10th to observe the Good Friday holiday
As has happened many times with historical events, COVID-19 has changed our world in ways previously unimaginable. In many states, Americans shelter at home, venturing out for groceries, medicine, and other essentials. Parents have become teachers guiding online schoolwork, often while balancing their own work and online meetings. We are learning to manage the loneliness, frustration, and anxiety that accompany quarantine conditions.
We are also learning to cope with rapid and unexpected financial stress, despite just weeks ago enjoying an economy which was thriving and seemingly unstoppable. In less than a month, businesses have adapted to changed circumstances. Some are laying off or furloughing workers. Others have put equipment and technology in place to allow continued or remote operations. There is an impressive group of medical leadership working with the White House who continues to tell us that this virus has a curve associated with it, and that the best-case scenario would be to lower the peak of the curve. Our collective hope is the curve will flatten.
Despite solid performance early on, the first quarter of 2020 was one of the worst ever for U.S. stock markets. However, it is also important to understand that this market performance was largely based on fear; fear of the unknown, fear of not having enough, and fear of losing what had taken so long to build. As it relates to our current situation, the bulk of the recent negative movements in the markets were mostly due to fear and a desire for safety in the face of a potentially real danger. Below is the play by play.
At the start of the quarter (and the year), investors were confident despite concerns about trade. Many asset classes finished 2019 on a positive note. The Standard & Poor’s 500 Index and the Dow Jones Global (ex U.S.) Index both finished the year with double-digit increases. Bonds and gold delivered positive returns, too. Markets stuttered in January when conflict arose between the United States and Iran but recovered quickly as tensions eased. Soon thereafter, the United States and China reached a preliminary trade agreement. Investors were thrilled and the Dow Jones Industrial Average surpassed 29,000 for the first time ever.
It wasn’t until late January that news of the coronavirus outbreak in China began to unsettle investors. Many were concerned that precautions designed to slow the spread of the virus could also slow China’s economic growth and, by extension, global economic growth.
Major U.S. stock indices continued to gain value in February. At the time, Ben Levisohn of Barron’s reported, “They say the best defense is a good offense. The U.S. stock market may offer both… loading up on U.S. stocks looks like the right move. That’s because the world’s problems [coronavirus in China and lackluster economic growth in the European Union] might actually make U.S. markets more attractive.”
The early-March decline in U.S. stock markets was triggered by price wars in the oil market. Natasha Turak of CNBC reported that Saudi Arabia and Russia failed to reach agreement about output, which sparked a price war. The subsequent supply and demand imbalance – the market was glutted with oil in a time of falling demand – caused oil prices to drop sharply.
Demand for oil continued to drop as coronavirus spread into more countries. U.S. stocks reflected concerns that COVID-19 could become the catalyst for recession in the United States and elsewhere, reported Heather Long and colleagues at The Washington Post. Uncertainty increased when, during U.S. earnings calls, many companies were unable to quantify the potential impact of coronavirus on their businesses.
As the potential human toll of the virus became better understood, many states closed non-essential businesses and issued shelter-in-place orders. Investors began selling shares to ensure they had cash available. As a result, shares were sometimes sold at low prices with little regard for long-term performance potential.
Nicholas Jasinski of Barron’s reported monetary and fiscal stimulus, including relief for individuals and businesses, has helped restore some optimism to markets. In addition, greater certainty about the potential dimensions of the virus may be restoring confidence. He wrote:
“Now, investors seem to be moving on to the next stage of the coronavirus market: picking winners and losers. The correlation between stocks in the S&P 500 index has retreated from its recent near record-high levels, a sign that investors may be considering them more on their own merits. And day-to-day index volatility has fallen significantly since the Dow’s three-day surge.”
It is possible we have passed peak uncertainty. While the exact dimensions of the coronavirus remain unknown, investors’ fears have begun to recede. Barron’s reported the CBOE Volatility Index (VIX), Wall Street’s fear gauge, closed below 50 last week for the first time since early March.
Major U.S. stock indices finished last week lower, capping the worst monthly and quarterly performance in U.S. stocks since the 2008 financial crisis.
Weekly Focus – Think About It
As we continue to talk about market movements and those who are rightly concerned for our families, ourselves, and all our collective futures as a nation and as a world, it reminded us of these lines from the film “After Earth” when Will Smith’s character tells his son:
“Fear is not real. The only place that fear can exist is in our thoughts of the future. It is a product of our imagination, causing us to fear things that do not at present and may not ever exist. That is near insanity. Do not misunderstand me, danger is very real, but fear is a choice.”
We need to remember that fear can also keep us from seeing workable solutions to the dangers we may be facing… or even opportunities which exist now.
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https://www.washingtonpost.com/business/2020/04/03/unemployed-coronavirus-faq/?arc404=true (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/04-06-20_TheWashingtonPost-Coronavirus_Unemployment_Guide-What_to_Do_if_You_Get_Laid_Off_or_Furloughed-Footnote_1.pdf)
https://www.barrons.com/articles/stocks-catch-a-cold-after-fed-stops-expanding-its-balance-sheet-51579916069?mod=hp_DAY_1 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/04-06-20_Barrons-Stocks_Catch_a_Cold_After_Fed_Stop_Expanding_Its_Balance_Sheet-Footnote_8.pdf)
https://www.barrons.com/articles/dow-jones-industrial-average-gains-846-points-in-comeback-week-51581124626 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/04-06-20_Barrons_Coronavirus-Slower_Growth-The_Dow_Just_had_a_Spectacular_Week-Footnote_9.pdf)
https://www.washingtonpost.com/business/2020/03/09/coronavirus-panic-stunning-market-declines-fan-recession-fears/ (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/04-06-20_TheWashingtonPost-Coronavirus_Panic_Stunning_Market_Declines_Fan_Recession_Fears-Footnote_11.pdf)
https://www.barrons.com/articles/dow-jones-industrial-average-drops-584-points-for-week-why-thats-progress-51585963044?mod=hp_LEAD_2 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/04-06-20_Barrons-The_Dow_Dropped_584_Points_this_Week-Why_Thats_Good_News-Footnote-13.pdf)
https://www.washingtonpost.com/opinions/2020/03/23/yes-this-business-still-has-your-email-heres-how-were-responding-covid-19/ (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/04-06-20_TheWashingtonPost-Yes_this_Business_Still_has_Your_Email-Heres_How_Were_Responding_to_COVID-19-Footnote_14.pdf)
After Earth, Sony Pictures released May 31, 2013 (USA)