Thoughts on Investing: First Quarter 2020 – Big Problems Sometimes Come in Small Packages
Daniel Yu | April 10, 2020
We entered 2020 with reasonable expectations of ongoing economic growth. Unemployment was low, wage growth was strengthening, inflation was contained, and trade issues with China were reaching some resolution. Then in mid-February, the World Health Organization declared the COVID-19 virus a global pandemic and governments across the world began to take unprecedented measures.
Economic activity declined throughout the world as “self-isolation” and “social distancing” became the norm. The halcyon days of January became a distant memory, as the longest economic expansion on record came to a spectacular halt. We expected the Presidential election to be a source of volatility during the year, but now one is almost nostalgic for the rancor of the campaign trail.
Just about all assets classes fell in response to the economic uncertainty. How many lives would be lost? How many jobs would disappear? How many small companies would close? What would the impact be on earnings? What would the impact be on local tax revenues? Market participants are still assessing these impacts. Central banks across the globe began a more or less coordinated effort to inject liquidity into the financial systems. The Federal Reserve cut rates to zero and then introduced additional liquidity measures to keep the fixed income markets functioning.
Congress also stepped in by passing the CARES Act, offering approximately $2 trillion in stimulus funding with aspects that address both individuals and businesses. For individuals, there are direct payments to households, extension of unemployment benefits and suspension of the required minimum distribution rule for many IRAs. For businesses, there are loans (forgivable if certain requirements are met) and payroll tax credits. All these things are meant to help businesses weather the economic stresses of shutdowns.
Looking forward, it is hard to tell when the next bull market in equities will begin. One could argue that until we have an effective and widely distributed vaccine (estimated to be available by February 2021), we have the possibility of increased volatility. Of course, scientists are testing other treatments and they may prove effective until we have a vaccine. Equity markets tend to be forward-looking, and it may be that the worst of the economic damage yet to be reported is already accounted for in the price of securities.
Taking a longer view, we expect that new technologies and innovations will be developed that allow for us to continue to work and produce even as we practice social distancing. One example of how science never sleeps is the fact that the COVID-19 genome was mapped in two days versus the five months it took for the SARS virus back in 2003. We expect such advances to help speed the development of an effective treatment.
For our clients, we ask that you please reach out if you wish to talk – even if it’s not about your account or investing. We want you to know that we care for you and want to do our part to help in these trying days.
Additional COVID-19 Resources
|REDW Wealth and its parent company, REDW LLC, are regularly providing updates on the CARES Act and other responses to the COVID-19 crisis. Here’s where to find them:
And, of course, you can always call your REDW Wealth Relationship Manager.
Copyright 2020 REDW Wealth, LLC. All Rights Reserved. This publication is intended for general informational purposes only and should not be construed as investment, financial, tax, or legal advice.