Amidst a global pandemic and widespread domestic unemployment, the U.S. equity markets posted a powerful rally in April that was one for the record books. The S&P 500 gained 12.82%, posting the best monthly gain 1987. The Dow and NASDAQ followed suit by gaining 11.22% and 15.40%, respectively. The foreign stock markets also experienced impressive, yet lessor, gains in April. The MSCI EAFE (developed foreign countries) gained 6.46%, while the foreign emerging markets were up 9.18%.
With the U.S. equity markets reaching all-time highs on February 19, and then falling into a bear market (-20% or more) in less than five weeks demonstrates the extreme volatility the U.S. equity markets have experienced since the coronavirus has come on the scene. When the investment markets fully recover from the March 23 low has everything to do with how well and how quickly the U.S. economy gets back up and running. And that will begin at the state level, each state deciding when its economy can be safely re-opened.
The 2nd quarter of 2020 is expected to be rough from an economics standpoint. With more than 20 million Americans filing for unemployment benefits, and billions of dollars being sent out to employers through the PPP (Payroll Protection Program), the impact of the Fed’s monetary and fiscal policies has yet to be seen in terms of getting people back to work. This is likely to have a direct effect on Q2 gross domestic product (GDP), which is expected to be down anywhere from -10% to as much as -40%. Being the second consecutive calendar quarter with negative GDP, the U.S. economy will be in a technical, “event-driven” recession.
There are high hopes for economic recovery in Q3 and certainly by Q4 2020. How the investment markets behave between now and recovery is unknown, but likely to involve periods of high volatility. It is important that the investor take this volatility in stride, understanding it won’t last forever.
Please call us anytime you would like to discuss your investment strategy. We will get through this challenging time together.