This past week brought to light a handful of historic events that continue to unfold as the coronavirus (COVID-19) wreaks havoc on our livelihood. It is clear that we are living through a phase of life that will be written about for years to come, and we are all hopeful for positive steps back to a normal society. The president signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the Act) as the third and most sweeping package aimed to provide financial support for Americans affected by the coronavirus. The Act itself is historic as the largest monetary stimulus package to pass all three branches of government, making $2.3 trillion available to those suffering from the pandemic. With the large amount of financial relief comes a long list of rule modifications intended to ease the pressure that individuals, businesses, and state and local governments are continuing to face. The Act addresses important needs, but it is by no means a fix-all for our battered economy. The market continues to exude drastic volatility, unemployment claims continue to skyrocket, and everyone is still trying to cope with new norms like social distancing.
Understanding the logistics of some key facts in the Act can help lay a foundation for basic acumen. The Department of the Treasury now has $454 billion to backstop the Federal Reserve in order to stabilize the US debt markets, which can be done through direct loans, loan guarantees, or other investments. The fixed income markets saw a gradual solidification this week as the emergency funds were put to work. Also, the Act allows for over $301 billion to be injected into the pockets of eligible Americans through direct payments, providing financial relief for those individuals in need. In addition, small businesses are aided by $349 billion in SBA loans and loan guarantees that, if used correctly, will be forgiven once the life of the loan is complete. The government has made an exorbitant amount of monies available, including broadened access to qualified retirement plan funds through penalty waivers and loan repayment extensions. While all of these tactics are aimed at keeping the economic machine running, the broad market has continued its volatile trend in recession territory.
Continuing for the second week, first-time unemployment claims soared by record numbers with nearly 10 million Americans filing for assistance in the two-week span. Although Americans continue to lose jobs at an alarming rate, the mid-week market pullback can also be attributed to an even more grim perspective: Wednesday recorded the most coronavirus-related deaths in the US in one day. While Thursday’s news of potential oil production cuts boosted the equity markets into positive territory, it is only reasonable to expect that the news and effects of the coronavirus pandemic will continue to get worse as the fight rages on. As long ago as it might seem, the market peaked at an all-time high on February 19th, and has since lost roughly 34% of its value, making a significant reversal of course from the previous 11 years. The slight boosts that the market sees during these times are positive, but the overall trend continues to point to an extended market downturn. That being said, we must not lose sight of the hope that past recessionary periods have presented.
The unpleasant periods of bear markets have typically brought forth prosperous years of recovery once the economy has had time to heal. This is by no means a prediction of what will happen in the future, but of the past 11 bear markets dating back to 1946, a bull market has followed to expand economic growth. The 11 bear markets have averaged 16 months and a decrease in 30%, while the ensuing bull markets have lasted 130 months and averaged a 142% positive return during that time. Again, we do not have a crystal ball, but this is simply a call to understand that there is hope for the future. In recent days it has seemed somewhat silly to even think about the markets while there is so much despair happening in the world, but a healthy economy can bolster healthy living. Your physical health is paramount and we must remain vigilant in our efforts to stop the spread of this lethal virus, ultimately leading to our ability to get back to work and guide the economic machine to prosperity.
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