In a tumultuous week for equities, the Dow swung 1,000 points or more – twice within three days. The Dow lost nearly 1,000 points (more than 3%) on Thursday, and added even more sharp declines on Friday, tanking more than 750 points. The S&P and the Nasdaq followed the Dow with wild fluctuations as well. While uncertainty reigns, it is worthwhile looking at triggers to monitor the state of the markets and the economy. Here are a few:

1. U.S. consumer strength

2. Small business confidence 

3. Jobless claims 

4. Lower U.S. mortgage activity

Consumer confidence (#1) has remained strong and despite the outbreak of the corona virus, consumers continue to view current conditions quite favorably. First signs of breakdown in this indicator could spell trouble. Uncertainty surrounding the coronavirus, if it causes small businesses to invest less (#2), that could mean long term slow down in the economy that will materialize well after corona virus is behind us. A hit to the labor market (#3) could also bode the coming of a recession. And finally, despite lower interest rates, fewer people filing for mortgage applications (#4) would be negative.

Future Wealth’s View

Of course, one could hope that a vaccine emerges quickly and the containment of the virus is round the corner. But, that would be too much to ask. The reality is that this virus, which Chinese authorities first detected in Dec 2019 and did little to contain the spread, has now gotten out of control. From Asia to America to Europe, schools are closing, ball games are deserted, airlines are cutting flights, stores are running out of supplies and so on. It would be naive to think that all of this will have no impact on Q1 2020 corporate earnings. And, with every passing day without a vaccine, the chances are that Q2 2020 guidance from US corporations will be nothing to cheer about. Bottom line – equities are in for a sustained sell off and high volatility will be the norm.

Our view, at Future Wealth, having moved most of our client positions back into defensive names and sizable cash positions at the first sign of trouble, is to ride this out. It is not going to be pretty though.