We are now 79 days removed from January 22nd 2020, a date that marks the first reported coronavirus (COVID-19) case in the United States. Since then over 462,000 confirmed cases of the virus have been reported along with almost 25,500 recoveries and over 16,500 deaths, leaving the death rate of COVID-19 for the US at roughly 3.5%. As stated in earlier updates, the coronavirus poses a unique issue due to the number of days between infection and actually showing symptoms. The asymptomatic period, coupled with the overall timeframe from initial infection to resolution – typically 23-24 days – is putting infection and death projection rates under extreme scrutiny because instant results from preventative measures, like social distancing, are unobtainable. We have become accustomed to instant gratification, so it is difficult to adapt the long-term perspective of medical experts when they reference projected infections doubling every 3 days, accompanied by 3.4% resulting in death. Although difficult in practice, mid and long-term perspective are necessary when assessing the physical effects of the coronavirus, and when analyzing economic, market, and personal investment portfolio outlook.
On Monday the equity markets ended slightly negative, continuing the trend of early-week drops since the pandemic began taking a lasting toll on the economy. Tuesday saw markets rise intra-day, but again the attempt for a positive swing fell short as trading closed. Yet, Wednesday and Thursday’s activity reflected some metaphorical light at the end of a series of short tunnels. The S&P 500 Index closed at 2,789.82, up over 20% since the March 23 low of 2,327.40. A positive boost indeed, yet the index is still down over 15% from the February 19 peak of 3,386.15. And the reasons for the uptick, ending a shortened trading week with a roughly 4.8% increase for the S&P 500 index, are somewhat futile: the broad market is processing and reflecting information indicative of short-term, easily comprehendible reactions to an unprecedented pandemic. Looking at recent data shows that the market is most likely not taking into account the lasting economic toll posed by the coronavirus. Thousands of individuals have died, millions have lost jobs, and most businesses are having trouble even treading water, but investor sentiment continues to rely on delayed action from the government and Federal Reserve.
The Fed on Thursday initiated a broader backup of corporate and municipal borrowers by expanding lending facilities to an estimated $2.3 trillion. Ease of credit access for banks, municipalities, and mid-size corporations is a calculated move by the Fed to help stabilize the economy until the end of the crisis. And the timing of the announcement itself was a calculated move for the markets. Just before the Fed’s multi-trillion-dollar debt expansion announcement, the weekly jobless claims report was released, revealing 6.6 million new individuals claimed unemployment benefits last week, bringing the total new unemployment claims to over 17 million for the past 3 weeks. Yet the market swallowed that news in stride, with the S&P 500 Index closing positive 1.45% on Thursday. The recent market fluctuations represent several ripples in a line of reactions stemming from the coronavirus impact. Just last week the government signed the CARES Act, which in turn led to a somewhat positive rebound for the market. What the market failed to reveal was the deeper issue - the CARES Act was a reaction to the already detrimental long-term impact the coronavirus will have on not only the US economy but the economy of almost every country. Failure to understand that the recent fiscal and monetary policy changes have been put into action to counter the bleak economic outlook is creating a façade of confidence for the markets.
One common, overarching conflict presented by the coronavirus is when and how do we restart the economy? The answer to this question boils down to individual morals and priorities, and multiple experts in their respective fields have voiced their own opinions on how to strategically stop the spread of the coronavirus while keeping the largest economy in the world intact. That being said, there is no easy or “right” answer. Thankfully the decision of re-vamping the economy is not on my docket, but financial advisors have a duty to offer insight into what might be on the horizon in order to help prepare clients for the potentially long road to recovery. No one can predict the future, but we study history because typically the past shows glimpses of the future. First, the S&P 500 Index has averaged plus or minus 4.8% daily changes over the past five weeks - the most volatility shown since 1929. Also, of the 15 recent bear markets, within three months of the initial market decline 14 of those approached or surpassed the initial market percentage decline. For example, the Great Recession saw an initial decline of 47% beginning May 2008 and ending November 2008, then 25% recovery from November 2008 to early January 2009, followed by a further decline of 27% from early January to late February. That being said, we are in a time when the future is much more volatile than most have probably ever experienced. It is unclear when the end of this crisis will come to fruition, but it clearly takes a communal understanding of the long term impact that inaction will have on our society to recognize the potential for extended economic contraction. When the economy reboots, individuals get back to work, and life can start to bloom back to normal is dependent upon how quickly we can defeat this virus.