This has always been a Virus driven event. COVID-19 is the reason our lives have been altered so dramatically. So, it is there that we start this update. The US is approaching 600,000 confirmed cases but the rate of increase of new cases has slowed. On April 10th we had over 35,000 new cases while yesterday's new cases confirmed were just shy of 25,000. 23,649 people have died in America as of April 13th. Johns Hopkins University will continue to compile the numbers, but clearly, we are near the peak of the virus's effect on us physically. We may have reached a peak, but others will continue to be confirmed with COVID-19 in the future and tragically some will succumb to the virus.
The Government
The actions taken by our government over the last several weeks, including passing the Paycheck Protection Program within the CARES Act, are all designed to help the economy and businesses during these forced shutdowns of economic activity. Another, albeit less publicized, government action was taken by the Federal Reserve on Thursday of last week by releasing their plan to put $2.7 trillion to work across a variety of programs to sure up areas like “Junk Bonds”, consumer loans and Municipal Bonds. “The Fed made it completely clear they are going to do everything possible to keep companies in business, employees in their jobs, and consumers in their homes, cars and credit cards”, wrote Blaine Rollins, CFA at 361Capital. It is likely that one of the major reasons the market had its best week, last week, in over a decade was as a reaction to both nearing the peak of the virus and the actions of the government to “save” the economy.
The Economy
The headlines over the last two days are starting to pivot to the “reopening” of our economy. We ultimately need the economy to reopen for our businesses to be “saved” over the next several months. As we get clarity on the details of how we start to come out from our shelter at home orders, we will start the process of returning to our routines. We will need to see improvements in testing both to see who has the virus and more importantly is to be able to identify who HAD the virus. If we know who has antibodies to the virus and presumably is then immune to getting it again, those individuals can go back to “normal”. Long term we will need to have both a vaccine and treatment protocols to allow us to get back to large group gatherings, plane trips, cruises, concerts and sporting events. Until then sports are likely to start up without spectators and restaurants will be reopened but have reduced capacity to allow for proper distancing. Assuming these tests are not widely available soon, any recovery to our economy will likely not look like a “V” but rather will take much longer than initially hoped for.
The Markets
Bernie Sanders dropped out of the Presidential race last week and the perceived risk of a potential shift toward a more centralized economy went away. It is very ironic that the current government implemented almost $5 trillion in stimulus at the same time as Bernie Sanders dropped out and the markets thought that both of those events were positive.
This week is the start of earnings reports for the period that includes February and March and will start to give us actual hard data on the depth of the damage to large businesses. These numbers are going to be very bad for most businesses. These reports are generally looking backward into what has already happened, but they often give guidance as to what the business expects in the future for things like total sales, revenue, expenses and profit. Stocks valuations likely will continue to be very volatile as these reports start to show mixed past results and mixed outlooks going forward. This virus and its effects on the economy and therefore the markets will be felt well into 2021.
It has been encouraging to see the reaction of many of our clients to stay the course while some (that are still receiving a paycheck) are increasing their contributions or making additional investments. If you have any concerns about your situation, please feel free to reach out to us.
Stay healthy and safe!