A $2 trillion fiscal spending package that will help provide a lifeline to families and businesses most affected by the virus. This spending package: 1. provides directs payments to most adult individuals of $1,200, phased out at higher income brackets; 2. Expands unemployment insurance to four months, increases the amount of monthly payments, and loosens eligibility requirements to cover more displaced workers; and 3. Provides low-cost loans to small businesses that can be forgiven if employees are retained, and helps distressed corporations, industries and states.
Stocks recorded their best week in 11 years and posted back-to-back gains for the first time in over a month, even though the S&P 500 remains about 25% off its February high. The Federal Reserve announced open-ended asset purchases and other measures to support the flow of credit to employers, consumers and businesses. Additionally, Congress and the White House reached a deal on an unprecedented $2 trillion stimulus package to offset the fallout from the coronavirus outbreak. We believe a flattening of the infections curve in new coronavirus cases globally is eventually needed for stocks to start looking past the incoming decline in GDP and earnings, but policy support can help prevent this health crisis from evolving into a more prolonged, full-blown financial crisis.
Equities entered a bear market last week, dropping 19.9% from the high posted February 19th of this year and ending the second-longest bull market in U.S. history. The bull market’s passing was punctuated with a level of volatility that has not been seen in decades. For the first time since 1997, circuit breakers at the New York Stock Exchange were tripped not once but twice last week, on Monday and Thursday, when the Dow fell by 7% both days. Bonds also needed a stopgap to mitigate the surge of volatility. This time the circuit breaker was the Federal Reserve, which injected $1.5 trillion dollars in available reserves in order to sooth investor angst reflected in bond yields that fell to record lows.
Despite last week’s pullback, equities are still up 6% over a 12-month period. Maintaining a long-term perspective can help investors see past short-lived economic headwinds tied to global shocks like the coronavirus. Just as healthy branches tend to bend but not break under the downward pressure of snow, we think the bull market will not be broken by a global shock if underlying economic conditions remain robust. By focusing on the bigger picture, investors can put this week’s market pullback into the larger macroeconomic context characterized by still-positive fundamentals.
It’s said that you shouldn’t look a gift horse in the mouth, but we’d argue that it doesn’t hurt to check it for cavities occasionally. The stock market has certainly played the role of gift horse lately, returning over 4% so far this year and an average of 14% since early October, including reaching new all-time high last Wednesday. We have no objections to this latest rally. The economic backdrop, monetary policy settings, and financial conditions are all supportive of further longevity for this bull market.
Coronavirus concerns have sparked a few bouts of daily market volatility, but U.S. equities have largely taken the developing outbreak in stride, rising 4.4% so far, this year. Travel bans, shuttered factories and businesses in China, along with the rising number of confirmed cases around the world, naturally evoke an emotional response as well as questions around the potential implications for the investment outlook
Markets have been adept in shaking off risks so far in 2020. After two consecutive weeks of losses, major indexes posted their best week since June of 2019.
Week 05 of 2020, Lesson from SARS: Long-term market conditions outweigh short-term uncertainty
There’s an old investing phrase, “No one ever made a dime panicking.” The pieces are in place for the market to deliver a positive performance again this year, but when the path gets bumpier, make decisions aligned with your financial goals, not emotions or headlines. While not necessarily too far or fast, this market has come quite a ways in a short period. A good offense and defense can help long-term investors navigate both the ups and downs that may lay ahead.