Market in a Minute March 16-20, 2020
by Rich and Sheila Jamison
Can you remember growing alarmed when the VIX (volatility) spiked to near 30? For several years, a 1% move in the S&P 500 was an attention-grabbing outlier and volatility set record single-digit lows. Since market turmoil began on February 25, the average daily change in the S&P 500 has been 4½%.
What’s happening? Is it warranted? When will it stop? You’ve undoubtedly seen and heard more about the Coronavirus than you want to. And probably more about the economic dangers than you want to. And more about the market’s nosedives than you want to.
So let’s turn the coin over. Is there a silver lining in the dark, dark cloud? Are things getting better or worse? We’re not speaking of ‘false hope’ as that only disappoints in the end and nobody can know the future. Are there facts lining up on the plus side now? If so, what are they?
First, there is the ‘invisible’ set of actions taken by central banks. The Fed has committed trillions of dollars to things you can’t see. You’ll hear more than enough about these in the media. What is important to know is that these actions keep the wheels of the financial system turning and its plumbing open to money and credit flow.
Next, at last government action is commensurate with the need. True, it would have been less drastic if it began sooner, costing far less in terms of lives, money and inconvenience. The silver lining is that it is now underway. This is happening in two realms.
Health – we’ve begun doing what must be done to corral the virus. Moreover, it looks like we will be stepping up these actions on an hour-by-hour basis.
Economic – we’re not there yet. As noted, the Fed is being massively proactive. The ECB, IMF and countries are also stepping up. Kudos!
Now the focus is on Congress and fiscal policies. Congress is beginning to get its act together. The two sides are beginning to substitute problem solving for politicking (some people are lagging behind). There is a long way to go to put effective remedies in place for the upcoming problems. There are no easy answers. Most involve huge sums of cash. Money to the suddenly unemployed to live on. Money (bailouts?) to necessary industries and companies to help them survive the impacts of government mandated actions. How quickly and how well DC can and will do this is up for question … always has been, ever since we were kids. Some things never change, but there have been moments of outstanding cooperation in prior emergencies.
Nobody knows just where the market will go, when it will bottom or how fast it will rebound. The economists, analysts and other pundits argue constantly about whether the economy and the market will have a V-shaped or a U-shaped recovery. What we do know is that the market predicts what it expects the future to be. Right now, it’s not being optimistic. Most of the market action is attributed to fear – of the coronavirus and of the economic results from containment and remediation measures.
The silver lining here is that the market has always been forward looking. Historically it has led the economy – in both up and down directions – rather consistently. While the past cannot guarantee the future, this relationship suggests the market will rebound before the economy.
Putting It All Together
The market’s plunge resulted from the coronavirus and its anticipated impact on our economic future. We’ve begun to take the needed steps to stop the virus and to address that future economy. It’s already very expensive … and will undoubtedly become even more so. However, there is no choice. Though we may be late to the party, we are now moving forward on the right paths. As they say, go big or go home. Well, we’re going big. Though the situation will likely get worse – much worse – before it gets better, this too shall pass.
Now, Back To Our Regularly Scheduled Programing
Here’s last week’s market summary, the market’s worst week since 2008.
The US 10-year note yield edged down. WTI crude oil fell to $23.73 on growth concerns and the price war between Saudi Arabia and Russia. Volatility (the VIX) reached 85 (an all-time high) before slipping back to 66.
We’re not listing the week’s individual events as the opening discussion sums up pretty much all that now matters. By the way, as it says in our footnotes, please send this along to anyone you feel might benefit from it. Many people are really, really down about everything right now. Perhaps this note might lift a spirit a little bit here and there.
Nothing in the above is meant to be, nor should it be construed as, investment advice or recommendations to buy or sell any security. Individual securities, whenever mentioned, are for illustrative purposes only and may not be relied upon as investment advice.
All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.
Tax and/or legal information contained herein is general in nature and for informational purposes only. It should not be relied upon as advice. Consult your tax professional or attorney regarding your unique situation.
Past performance is no guarantee of future results.