In general, for markets to move higher, investors need to see two things - what’s being done to stop the virus spread and what’s being done to limit economic disruption. We got some clarity on the latter point. It took lawmakers a bit longer than many investors had hoped, but Congress was able to come to terms with a significant stimulus bill of $2 trillion. That’s more than double the stimulus bill in 2008.
The stimulus package includes a combination of money being sent directly to households and companies. These include cash payments to many Americans, loans for small businesses that become grants if firms use them to maintain payroll, a significant increase in unemployment insurance payments and needed support for health care systems and state/local governments. Lastly, there is a fund to allow loans for hard-hit industries (airlines for example).
The massive stimulus package should provide a relatively quick injection into the economy. However, we do think economic data and equities could still be challenged in the coming months. People and businesses will hopefully have the liquidity to pay bills and rent and get through the coming weeks but consumer spending is still at a virtual standstill. Based on what we have seen from earlier afflicted areas (such as Asia and Europe), the upcoming economic data will be very bad. We already saw an unprecedented increase in unemployment claims. Additionally, there will be more news around the growing number of COVID-19 cases and the stress this will have on our health care system.
While no one knows when the stock market will bottom, this fiscal stimulus may provide for a quicker recovery. While it likely won’t be enough to prevent a sharp economic decline in the second quarter, it should help to support an eventual recovery once the COVID-19 virus has been brought under control. Until we get more positive news around the virus itself, we think markets will remain volatile. It is important to remember back to the financial crisis and what stimulus did in 2009 and beyond. It can be a driving factor for a recovery, which may be sharp. Regardless of the speed of the recovery, investments should be positioned appropriately for long-term objectives & cash savings balances should remain steady.
If you have any questions whatsoever, please do not hesitate to contact the office (while the office is closed to clients, we are available by phone & email). I am available by phone over the next couple of weeks & virtual meetings are also a possibility if necessary.
The Benefits of Staying Invested -- PIMCO
Part of our job as your financial planner is to act as financial behavioral coach. While speaking with clients over the last few weeks, I have heard the suggestion more than once of "cashing out until the market settles down". The emotional side of investing is very difficult to control as we try to resist the urge to sell low & buy high. PIMCO has a great visual as to why sticking with your plan through tough downturns to recovery can be the best option. After all, we didn't cash out when the market hit an all time high earlier this year.
Capital Group has a great post about facing unprecedented bouts of market madness--referencing a letter from their leadership from 1973. The letter speaks for itself and is an encouraging read for unprecedented times.
- The words of a former Capital Group chairman recall another dark time in our history and offer important perspective for long-term investors.
- Markets have experienced painful declines many times in history and have come back.
- Investors who can look past the current environment and stay the course may benefit over the long run, but keeping emotions in check is a challenge
- Remember to trust your plan
Past performance is not indicative of future returns.