America has more than 100,000 coronavirus cases, but it’s unclear what path the mortality rate will take in the coming weeks. China is keeping foreigners out, India is trying to keep 1.3 billion people indoors, the U.S. continues to struggle with testing and doctors in Spain are being forced to choose who to save. Britain’s Boris Johnson became the first world leader to test positive.The House approved the $2 trillion rescue package and President Donald Trump signed it. Markets still fell, as did U.S. consumer sentiment—by the most since October 2008.
Covid-19 is impacting everything from retirement dreams to weather forecasts. Unemployment claims skyrocketed more than 1,000 percent to 3.3 million, the Labor Department reported Thursday, as the coronavirus pandemic and government measures to limit its devastation brought huge swaths of the U.S. economy to a halt.
There are similarities between the 2008 financial crisis and current pandemic – the sudden jarring breakdown of the economy and the markets followed by massive response from policy makers aiming to prevent a 21st century depression. But there are differences as well. The speed at which the virus has ground the entire world to a halt is unprecedented. At the depth of the crisis in 2008, unemployment claims never came close to a million and the impact on GDP, this time around, is expected to be a lot worse than the 8% decline during the financial crisis.
Future Wealth’s View
In a stock market full of optimists, people tend to ignore the numbers that are showing up related to unemployment, recession and closing of businesses. Instead, the markets focussed on the bailout packages from the Fed and the government and cheered. Very quickly, the sentiment turned to “the worst may be behind us” and it is time to start buying equities again.
Our view, at Future Wealth, is that volatility will remain high, which means we could see a visit back to the lower levels we saw not too long ago and instead of a sustained recovery to the Feb highs, we are more likely to see the markets bouncing around for at least the next few months until this virus is contained.
Here is the sobering reality – Aside from the crash of 1929 and the Great Depression that followed in its wake, the bear market and global financial crisis of 2007-2009 was the worst. At its worst, loss during the financial crisis was 56% and it took 5.6 years to recover the loss. This time around, with so much uncertainty about the effects of the pandemic, and despite the drastic measures taken by the Fed and the government, everyone is worried about a complete health and economic meltdown. The market hit bottom at 35% loss and has recovered somewhat. But, the real recovery back is going to be in years, not months. There may be worse news ahead in the coming months that may test last weeks levels again. This is not the time to jump into equities headlong but staying in cash or defensive names maybe the more judicious choice.