Market Commentary for the week of March 23, 2020

The Markets

Despite the administration’s relief measures, stocks plunged to a three-year low Friday. Contributing factors included New York State’s stay-at-home order and a reversal in crude prices. The three major indexes had their worst weekly falls since the financial crisis in 2008. For the week, the Dow fell 17.29 percent to close at 19,173.98. The S&P lost 14.95 percent to finish at 2,304.92, and the NASDAQ dropped 12.62 percent to end the week at 6,879.52.

Source: Morningstar.com. *Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Three- and five-year returns are annualized. The Dow Jones Industrials, MSCI EAFE, Barclays US Agg Bond, NASDAQ and S&P, excluding “1 Week” returns, are based on total return, which is a reflection of return to an investor by reinvesting dividends after the deduction of withholding tax. (TR) indicates total return. MSCI EAFE returns stated in U.S. dollars.

Getting It All Back — In all 11 bear markets that suffered at least a 20 percent decline in the S&P 500 index in the last 75 years before the current 12th bear market, the stock market eventually recovered 100 percent of the sustained loss, going above the previous bull-market high. The average time the stock market took to recover back to a new high closing price from the low point in the downturn was 24 months (source: BTN Research).

Bear Frequency — From 1945 to 2020, the stock market (using the S&P 500 as its benchmark) had 12 declines of at least 20 percent or approximately one every 6.25 years. A bear is defined as a stock market decline of at least 20 percent. The stock market suffered its 12th bear since 1945 recently when the index fell 26.7 percent from its Wednesday, Feb. 19, peak to its closing value on Thursday, March 12 (source: BTN Research).

Bull Over — The bull market for the S&P 500 that began on March 10, 2009, is now officially over. The bull lasted 131 months (2,756 trading days, one month short of 11 years), peaked on Feb. 19, 2020, at 3386, gained 529 percent (total return) or an annualized gain of 18.3 percent per year (total return) and set 255 all-time closing highs. It was the 11th (and longest) bull since the end of WWII, producing the second largest overall gain (source: BTN Research).

WEEKLY FOCUS – Hope in the Midst of the Storm

Most Americans have never encountered the kinds of health concerns we now face. Sobering warnings out of Italy and from our own experts have led families, businesses and local governments to take drastic measures to reduce the spread of COVID-19, or the novel coronavirus. Americans’ willingness to make sacrifices to keep ourselves and our neighbors safe may be one of our greatest reasons for hope.

Despite the markets’ disturbing performance in the last few weeks, there are also some positive elements in the economic arena. Unlike China, our economy was quite strong when the virus invaded the U.S., and unemployment was low. In fact, the U.S. economy added 273,000 jobs in February. Our stock market had enjoyed an 11-year bull run.

As COVID-19 spreads in the U.S., extreme steps are being taken and considered to lessen economic pain. On March 12, the Federal Reserve gave banks $1.5 trillion in short-term loans to support the flow of credit to companies and individuals. On March 15, the Fed dropped the benchmark interest rate to a range of 0 to 0.25 percent. This makes loans more affordable for troubled businesses and brings home mortgage rates to historic lows. The Fed also announced it would buy $700 billion in government and mortgage-related bonds.

The President signed Phase 2 of the coronavirus response into law last week. The $104 billion package primarily focused on paid sick leave and unemployment benefits. (Phase 1 focused on fighting the spread of the virus.) Expected to be much bigger, Phase 3 will likely include checks to citizens (which may include an income cap) in the near future and aid to hard-hit businesses. Federal income taxes do not need to be filed or paid until July 15.

While it’s impossible to predict how effectively these measures will offset decreased consumer demand and potential job losses and supply chain disruptions, some economic analysts predict a sharp economic contraction in the first two quarters of 2020, with growth picking up again in the third and fourth quarters.¹ Although a clinical trial for a vaccine is underway, it’s not expected to be available to the general public for at least a year.²

These are stressful times. But the many examples of proactive and unprecedented measures being recommended by experts and leaders and implemented by all of us bring optimism and hope. If you have financial concerns or questions you want to discuss, please feel free to call my office.

¹https://www.cnbc.com/2020/03/15/goldman-sachs-sees-zero-us-economic-growth-as-the-coronavirus-spreads.html

²https://www.businessinsider.com/photos-show-worlds-first-human-trial-of-potential-coronavirus-vaccine-2020-3

*The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities America, Copyright March 2020. All rights reserved. Securities offered through Securities America, Inc., Member FINRA/SIPC. SAI#3007545.1