The World Health Organization declared the coronavirus (COVID-19) outbreak a pandemic on March 11th, 2020, just over 37 days ago. As most investors are aware, the stock market reached a peak before the pandemic declaration, around February 19th, 2020. Ever since then we have witnessed volatility in the broad markets that most have never experienced, forcing even the most intelligent money managers to scramble for answers.
An almost certain fact on the horizon is a decrease in GDP for the US due to the coronavirus prevention response. Analysts across various industries are predicting an economic slowdown that some say could last years. Yet practical analysis of historic trends reveal that bull markets and times of economic expansion far outweigh the dark times of recession.
We are in a unique situation dealing with a pandemic-fueled decline versus a credit crisis or housing recession, so past market cycles are not fool-proof indicators as we grind through these financial woes. However, the policy responses to combat a long-term recession have been somewhat similar to those of past economic crises – bend but do not break.
This week the market showed indications that a recovery is possible, but it could take time.
The S&P 500 index first surpassed the 2,191 mark in November 2016. 39 months later in February 2020 the index peaked at 3,393, before declining back to the same 2,191 mark in March 2020. While the S&P 500 index erased over 3 years of growth in just 23 trading days, there are some positives that cannot be overlooked.
First, November 2016 marked 7 ½ years of growth that saw +14.5% annualized return each year since the March 2009 bottom of 735. This rally was on the heels of what we now refer to as the Great Recession, a 2-year period of market meltdown.
Another positive outlook is that through all of the volatility since the March 23rd low of 2,191 points, the markets have rallied back over +25% to 2,799 close on April 16th. These past two weeks alone have accounted for +8% of growth.
Looking at the markets from this macro view is a breath of fresh air when compared to analyzing other reports that shape the economy, like new jobless claims and oil wars.
Another 5.2 million people filed jobless claims last week, skyrocketing the number of newly unemployed Americans to over 22 million since coronavirus began to wreak havoc on employees. When and if these individuals re-enter the workforce remains to be seen as the number of coronavirus cases and deaths in the US continues to rise.
Another contributing factor to the economy is the global supply and demand of oil, which made strides this week to weather the storm with an OPEC+ deal that drastically cut supply. Delving into the economic details paints a grim picture for recovery, but Federal Reserve and government policies have been put into place to mitigate the time for economic and market growth to return.
The upcoming few weeks are pivotal for the suppression of coronavirus spread and ultimately getting people safely back to work.
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