Market Update – April 2020
We vividly recall the recession of 2008. The economy contracted, financial institutions required bailouts, layoffs abounded, and the stock market plunged.
But we didn’t grapple with fear tied to a health crisis. We ate at restaurants, traveled, and enjoyed live sports. Activities outside our homes have been greatly curtailed. The roots of today’s crisis are different, although every recession in the past 50 years “has been different”.
It’s unsettling for everyone.
The decline in stocks has been swift. The DOW shed 34% from February to March. Markets are concerned about falling oil prices, economic uncertainty and rising unemployment.
Your own individually crafted financial plan remains our guide, as the plan is rooted in the principle our U.S. economy expands over time and so do stocks.
We do not know what the next year will bring but history indicates it will be positive. We need to remember our long-term financial goals, even during trying times.
The Market Bounce
Since its low, the DOW has rallied 25%. The DOW is now only 16% below its February 19 peak. The recovery has been cautiously encouraging, and we believe three variables can be cited.
- The federal government passed the CARES Act. Funding includes over $2.8 trillion in spending, jobless benefits, loans and grants to businesses, and stimulus checks.
- The Federal Reserve responded aggressively. With greater speed than in 2008, the Fed launched numerous programs aimed at stimulating the economy–from big business to Main Street. The two-pronged attack has not been executed flawlessly, but it has encouraged investors to dip their toes back into stocks. While the economic outlook remains fluid, investors are trying to discern an economic recovery in the second half of the year.
- There are signs the virus is peaking and we should see phased lifting of the quarantine as early as next week.
Second Quarter Will Be Ugly
The St. Louis Federal Reserve estimates that GDP (measure of total US economic activity), could contract 50%. That’s unprecedented. Yet, forecasts vary widely. We don’t know how steep the downturn may be during the April-June period.
A sharp contraction in the second quarter (April to June) economy is expected, and layoffs are the first, bitter signs of the economic slowdown.
At first glance, our future is opaque. But the rally in stocks is an attempt by investors to sniff out an economic bottom and eventual economic recovery.
Remember, no one rings a bell sounding the all-clear signal. We expect large daily market swings to continue.
Final Thoughts & Hope
We don’t want to downplay havoc created by COVID-19. We are living in a world few envisioned only a few months ago. The virus has disrupted our lives, families and economy.
Yet, unexpected blessings have surfaced. People are reaching out to family and friends.
Families and communities are becoming closer. Activities and jobs around the country have been suspended but not ended. We are confident an economic recovery will take root and the pandemic will subside.
Americans have always rebounded stronger than before a crisis. We will get through this dark night and will be stronger for it.
Tapping Your IRA
The CARES Act waives the 10% penalty for withdrawing from an IRA and employer-sponsored plan prior to turning 59½. Rules and limitations are a bit complex, but if you want additional details, please let us know.
Once again, we emphasize your holistic financial plan incorporates your goals and is crafted over the long term. It is a road map to your financial goals. It incorporates inevitable market declines and keeps us from making rash decisions when markets turn volatile.
We recognize these are trying times. No one likes uncertainty, especially as it relates to our health and the health of our loved ones.
Uncertainty drains our most precious resource: happiness. Turn off the news, get outside, and turn to what brings you peace. We are confident this too shall pass, and we will be better for it. If you have any thoughts, questions, or concerns, reach out to me. That’s what we are here for. Our door is always open.
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