Latest Viewpoints on the COVID-19 Global Reaction

March 28, 2020 · Written By J. Stephen Lee

Be careful, stock markets can sprain your neck as you try to watch.

After falling into the fastest bear market in history, this week has been one of superlatives of the positive variety. The U.S. stock market on Tuesday staged a rally of a magnitude not seen since 1933, and then followed with additional strong gains on Wednesday and Thursday. Although Friday saw a 3.4% drop in the S&P 500, the weekly gains of 10%+ were the strongest since 1938. Japanese stocks rose an astounding 17%. Joking about sprains aside, the abrupt reversal from last week’s waves of selling can be confusing to follow. Has the coronavirus situation really changed that dramatically?

To keep you current, as we have been doing frequently in this fast-paced environment, here are a few very brief thoughts:

  • The overall medical situation in the U.S. has not materially improved since earlier this week. But what has seen significant change is that economic policy response from the U.S. government has coalesced in a historic and powerful manner.
  • Friday’s passage and signing into law of the $2 trillion stimulus bill has been a strong catalyst. This marks the largest economic relief package in U.S. history. While the bill’s final details are still unfolding, it will include direct payments to individuals, tax relief, small business loans, and many other stimulus provisions.
  • In addition, massive liquidity support and assistance from the U.S. Federal Reserve has signaled a “do what it takes” attitude to financial markets, a critical confidence boost, particularly to the credit markets. For the first time in history, the Fed is entering into the investment grade bond space via its emergency lending powers and ability to purchase corporate and municipal debt.
  • Although the above measures are an unambiguous positive, the global economy is far from out of the woods. Data beginning to be reported will start reflecting the coronavirus impacts —Thursday morning’s U.S. jobless claims of 3.28 million, for example — and markets will continue to sift and react to the data.
  • So, while the sharp stock market rebound is welcome and not unexpected given the magnitude of the prior declines, the outcomes regarding coronavirus and COVID-19 remain unknown, and thus, will likely lead to future bouts of high volatility.

We have been on many phone calls with clients, industry professionals, economists, analysts, and people from many differing viewpoints. While we have heard our share of cynicism, fortunately that reflects a minority, with the vast majority seeking to stay united and helpful in stemming the spread of and damage from the coronavirus. The message we have heard, in many different versions, has been similar to what we have urged in these communications:

  • A proper allocation before market turmoil arrives is key, and allows for confidence to stay the course with long-term plans and portfolios. Keep in mind that your advisory team has prepared for best and worst-case scenarios when structuring your financial plan.
  • It is important to recognize the fear and anxiety that can accompany stock market declines. Acknowledge, but do not act on it. The bottom line is that neither the ups nor the downs last forever, even if they feel as though they will.
  • Sitting still and not reacting can feel downright foolish. Yet reams of data provide the confidence that overreaction by selling and locking in losses damages long-term portfolio returns. It is very easy to miss the sharp and short upward price spikes of markets as they move off bottoms.

So, as the work-from-home environment continues and normal habits are disrupted, focus on things you can control and even enjoy, such as taking a walk, working on a budget, connecting with friends and family, and even gathering your tax data. Once daily life returns to its hectic pace — whenever that may be — people will likely look back on this unexpected change in schedule and wish they had utilized it more.
As a reminder, we encourage you to bookmark our website’s Knowledge Center, where we will continue to share our most recent commentary and related news. Your individual advisors and team members are here to address your specific questions or needs and are also available to help any friends or family in this unusual and challenging environment. All of us remain grateful for your continued confidence and support.