Note: This market review was published on April 8th, 2020 and may not be reflective of current market or investing issues.
2020 started off with a continuation of the longest bull market in history, but it didn’t last long into the new year. The major U.S. Indices hit their final high of the bull market on February 18th, 2020, and it was quickly downhill from there. It took slightly more than a month for the S&P 500 to reach its recent low of 2,191.86, a decline of more than 35%.1 This included the fastest 20% decline in its history, multiple days of futures trading being stopped at their maximum loss and gain, multiple tests of the market “circuit breakers” that pause trading for 15 minutes when the index falls by 7%, and some of the best and worst single days in the history of the market. The first quarter of 2020 was truly one for the history books.
We are living through a time that will be talked about for generations. We are in a health crisis the likes of which have not been seen for more than 100 years, and it is having drastic effects on the economy. A new virus that currently has no cure, no vaccine to prevent, and no heard immunity; it is truly a perfect storm. This virus has lead governments across the globe to take measures that only months ago we would have likely considered unthinkable. Global supply chains have been shut down, countries have banned travel, thousands of businesses in the United States have been forced to close, and millions of Americans have already lost their jobs. Unfortunately, this is only the beginning, and it is likely to get worse before it gets better.
The Federal Reserve has thrown everything it has at the markets in order to try and dampen the long-term effects of this crisis. They cut rates by 1.50%, all the way to 0%, and all of the cuts were made during emergency meetings. In addition to rate cuts they also announced multiple assets purchase programs which include buying treasury bonds, mortgage backed securities, municipal bonds, and for the first time in history, investment grade corporate bonds. The Fed is not alone. The federal government has also passed a massive stimulus bill of more than $2 trillion, which includes direct payments to American tax payers.
To add to the uncertainty, there was also stress on the global energy markets. At their latest meeting, the Organization of the Petroleum Exporting Countries failed to come to an agreement with Russia on production cuts. This led to an oil price war, with Saudi Arabia increasing production to their maximum capacity and dropping prices. The price of oil has seen a dramatic drop since that meeting falling to a low of below $20. This has put significant stress on U.S. energy companies which require a price much higher in order to produce a profit on their oil drilling operations.
With all of the uncertainty surrounding the COVID-19 outbreak and the oil price war it is difficult to understand the effects that will be seen in the economy and the financial markets, both short and long term. With that said, volatility is likely to remain high over the coming months while investors digest economic data, company earnings, and continued economic shutdowns. It is also probable that some small businesses that have been forced to close will not be able to reopen and some of those that have lost their jobs will not see those jobs return. The one thing that is certain is that this crisis is going to have real and lasting effects on our economy and on our population.
We wish all of our clients, friends, and family health and safety during these uncertain times.
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