Just as it appeared that April might be a repeat of March, stocks rebounded sharply in April, fueled by a flattening pandemic curve and positive results from a clinical trial investigating a treatment for COVID-19. Stocks continue to climb higher as more states begin the initial phase of reopening their economies and others have announced target reopening dates.
Although jobless claims were breathtakingly high, they were anticipated and allowed investors to focus on more positive developments. A more stable bond market supported by the Federal Reserve purchasing troubled debt also helped support the rally.
Restarting the Economy
The national dialogue over the COVID-19 outbreak has shifted toward restarting the economy, with state and national leaders devoting more attention to plans of loosening the shelter-in-place and social-distancing guidelines.
The first factor is the nature of the reopening. The White House has proposed a plan which leaves the decision-making process to the governors of each state for the reopening timing and process. These decisions would depend largely upon health experts’ assessments, as well as the public’s confidence in resuming their pre-quarantine routines such as work activities, going out to eat, and traveling.
Market Moves & The Federal Reserve
The S&P 500 has thus far retraced about half of its drop from the February highs. Although it is an impressive rally, the sudden drop caused the market to be very oversold and a bounce from the lows is analogist to what we experienced in the first leg down back in 2008. As noted in April’s newsletter, the market is likely to recover before the actual economy does, as the stock market is forward-looking and economic data is a lagging indicator (events which have already taken place).
The Federal Reserve has taken unprecedented measures over the last two months. In addition to providing liquidity to the markets (essentially the printing of money), the Fed has also stated that it would provide a “backstop” in the bond markets by purchasing bad corporate debt issuances to prevent companies from defaulting on their debt obligations. (1,2)
As medical progress is made in the fight against COVID-19, economic growth should follow. But in the meantime, be prepared for uncertainty and volatility in the next 12 months or so.
I hope you are staying safe and are working hard on maintaining your mental, physical health and try to keep a positive mindset. In these unsettling times, it is essential that you take good care of yourself as nobody cares more about your health than you.
This ordeal has been tough for all of us, but remember, you need to keep looking ahead and understand this current situation will not last forever. Rest assured with new medical advancements that will be coming on down the road, we may be able to enjoy many, if not all, of the simple pleasures we had just a couple of short months ago.
Monthly Financial Tip:
How large should an emergency fund be? There is no “one-size-fits-all” answer. The ideal amount may depend on your financial situation and lifestyle. For example, if you own a home or have dependents, you may be more likely to face financial emergencies.
1 - The Wall Street Journal, April 30, 2020
2 - CNBC.com, May 05, 2020
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.