The Bear is Back
A great start to the year quickly faltered as Covid-19 took hold and began to spread throughout the world. An oil price war in early March added to the chaos and drove stocks down to their lowest level in years, officially ending the bull market that began in March of 2009. From it’s high on Feb 19, the S&P 500 fell 36% as of March 23 and ended the quarter down 19.6% year-to-date, after recovering slightly in the last week.
Most of us have been in “news overload” the past few weeks as we socially isolate and hear of little beyond Covid-19 and its dramatic impact on the world. The daily stock market headlines have, thankfully, diminished slightly as the extreme volatility of early March has lessened. The official figures are yet to come, but it is all but certain the US has entered a recession. This one is unlike any that have come before it— it wasn’t caused by underlying systemic issues or gross excesses/imbalances within the economic system; this is the result of intentional actions undertaken in an attempt to save lives.
Because the cause is known, we’ve seen an unprecedented amount of government action in response. In the US, what took months to accomplish in 2008 was completed in a matter of days, with additional efforts still in process. Through both monetary policy and direct stimulus, governments around the world are taking drastic action to mitigate the long-term economic impact.
Despite the government action, the stock market’s increased level of volatility is likely to persist. It will take some time before we see a large improvement in virus cases and business earnings will look rough for a few quarters —plus a major election will be thrown into the mix. Not only are investors attempting to assess the near-term economic damage, but also trying to determine the long-term ramifications of all of those items. Fortunately, stock prices are ultimately driven by earnings and valuations. Once the larger fears and safety concerns have passed, people will eat out and travel once again, and stock markets tend to recover before the broader economy does.
This represents the 12th bear market since the end of WWII. While the markets appear ugly now, they can turnaround equally as quick. The average return for the S&P 500 in the first-year following a bear market low has been 39.2%.
We hope that you and your family are staying safe and healthy throughout this time and we urge everyone to exercise continued caution over the coming months. In many areas of the country, including here in MN, we are still a number of weeks away from
experiencing the peak effects of the pandemic.
If you have any questions or concerns, or would like to discuss your accounts or financial plans, please do not hesitate to contact us.
