March saw it all, the good and the bad. From the all-time high in the stock market on February 19th to the low for 2020 on March 23rd, the market lost 33.9% of its value. Never has the market declined that much in such a short time. The market moved rapidly from a correction to a bear market in March. This period was followed by a rally of 17.5% off the bottom in the final week of March that included the best three consecutive days in the market since the 1930’s.
The volatility has been unprecedented. It was usual to see changes of more than 2,000 points a day in the Dow. In the 21 trading days from the end of February to the end of March there were 11 days when the market was down more than 2% and 7 days when it was up more than 2%.
This economic crisis is different than the last one we experienced in 2008-2009. This time it was the action of state and federal governments that closed businesses to slow down the virus and protect lives that precipitated the economic slowdown. Just days before the crisis began our economy was growing at full employment and the stock market hit an all-time high.
When it became apparent what we are dealing with the Federal Reserve acted early to cut interest rates 0.50% in its first attempt to support the economy. This was followed by a full percent decrease in short term rates bringing it to zero. The Fed has also resorted to Quantitative Easing as it did in the 2008 crisis. It will buy back treasury bonds and mortgage-backed securities for “as long as it takes” to support the economy. This creates demand and lowers longer term rates.
On March 27, 2020, the President signed the $2 Trillion CARES Act to provide financial support to individuals and businesses until this virus is conquered and Americans can go back to work. The market rallied in the last week of March in anticipation of this legislation.
Workers who have lost their jobs as a result of the virus will receive financial support in the form of direct checks and enhanced unemployment insurance. There are funds available for small businesses, which are the backbone of the American economy, to help them keep employees on the payroll until they can return to work.
In the final days of March the volatility in the stock market and volume of trading decreased significantly. That is good news for markets. As we look at possibilities going forward we should expect continued volatility but hopefully not as severe as earlier in March. It is premature to say the worst is over and the market may decline again to the lows we saw on March 23rd or even lower before a bottom is achieved. The other alternative, though less likely, is that the bottom may be in and we will see recovery from here. Either way, this bear market will be resolved and we expect recovery when it comes to be swift.
The market is a leading indicator and investors look ahead six to nine months, so we expect the market to show signs of recovery before the health crisis is fully resolved. We are confident that this tragedy will end and better days are in the future for our country. In the short-term we need to brace ourselves for tougher times and stay strong and maintain our resolve.If you have questions and want to discuss your investments, we are available by phone and email. Contact us with any questions or concerns.