The Federal Reserve pulled all the stops over the weekend and cut interest rates by a full 1% to a target range of 0-0.25%. The Federal reserve also announced several measures to support the liquidity in the market and meet any funding needs. The double whammy from the COVID-19 pandemic and the drop in the oil prices will surely lead to a recession in the US economy, but hopefully it will be short-lived.
In recent recessions, the S&P 500 have declined by 50% on average – 49% in 2001 and 57% in 2008. As of Monday, 03/16, the S&P 500 was almost 30% off from the peak in late February 2020. Although we expect the current economic slowdown/recession to be milder than the ones in previous decades but whether we get a ‘V’ shape recovery in the equity markets and economy, will depend upon the fiscal stimulus by the government. We think this will be a trying time for the small and medium businesses and difficult to overcome without a government bailout. The estimates on the S&P 500 corporate earnings are already being slashed and the equities continue to de-risk based on the uncertainty on the future estimates.
Crisis, unlike change, comes slowly and then all at once. Something which started as the problem of China, quickly turned into global pandemic. If we try to connect the dots, this all looks very familiar and we have seen it in the past, be it 1987 crash, outbreak of SARS or the great recession, and as Winston Churchill said, never let a serious crisis go to waste. We know for a fact, that China and South Korea has recovered from this pandemic, although with remarkable effort and the USA will do the same. The eventual economic recovery in the US may be a ‘V’ or a ‘U’ or some other letter, but we know from the past that there will be a new normal. This has been one of the fastest bear markets in the history of the stock market corrections and once stocks fall over 20%, the longer term returns on equities start to look attractive. We continue to learn from the past and focus on the future and with that we feel that we are prepared to take advantage of opportunity this market has given us.
We are trying our best to navigate through this crisis and continue to monitor the financial market conditions. If you still have further questions about your investments, please feel free to contact your Wealth Advisor at Marshall & Sterling Wealth Management.
Stock investing involves risk including loss of principal.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
All indices are unmanaged and may not be invested into directly.
The Nasdaq 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the Nasdaq stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks.