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While not as dramatic as the double-digit bounce in April, major US stock indices continued to climb in May, with the Russell 3000 up 5.35% and the S&P 500 up 4.76%. Certainly, the past two months market returns are as favorable of a reaction to our current pandemic situation as one could hope. It’s almost as if the markets have already written off 2020 and are looking into 2021 – maybe because the impact on 2020 is not quantifiable, so it’s easier to just ignore. A bit of good news on this Friday morning. According to the Wall Street Journal, the jobless rate fell to 13.3%, from 14.7% in April, as employers added 2.5 million jobs in May. As of this post, markets are cheering, with the S&P 500 up 2.76%. Here’s to hoping the labor force continues to mend in June. Below are returns for the month of May for major stock and bond indexes. All return data provided by Morningstar.  Following a dramatic downturn in the first quarter due to fears over the novel coronavirus, global stock markets rallied in April, spurred on by continued support for small business by the Federal Government, via the CARES ACT, and a slashing of federal-funds rate to zero by the Federal Reserve in the second half of March. Below are returns for the month of April for major stock and bond indexes. All return data provided by Morningstar.  Markets have a lot to digest. First quarter GDP was down 4.8%, after adjusting for inflation, and over 30 million unemployment claims were filed in the past five weeks.
While it’s nice to see April flowers, given the troubling employment numbers and the lack of spending by US consumers, many economists are predicting May showers. Global markets have been roiled since Monday over news that the Coronavirus (dubbed COVID-19) has spread beyond China into Italy, South Korea, Iran, and most recently one case in Brazil. While there have been very few cases in the United States, as more and more countries experience the spread of the virus, successful containment becomes harder and harder. Understandably, the markets reacted to the news by declines in excess of 3% for two consecutive days. As of this email, US markets are down slightly, but as the virus spreads the potential for further market correction becomes highly probable due to the projected slowdown in global growth resulting from the virus. The question now being, “what should an investor do?”
First, let’s remember that this isn’t the first case of an epidemic impacting our global economy. A short history would include:
One can see that while there is concern of a global economic slowdown should the Coronavirus continue to spread, this is not the first and won’t be the last global epidemic, and none of the previous outbreaks over the past 18 years resulted in a global recession. Second, keep in mind that all client portfolios are designed to accommodate bear markets and corrections. Clients in withdrawal phase have ample bond positions (which have rallied as money pours into less volatile investments) to see them through years of average annual withdrawals. Those in the accumulation phase will not be needing the funds in the short-term, and a correction provides them an opportunity to continue to invest, but at a lower cost. In the meantime, Dolan Capital is a big believer in making lemonade out of lemons, so as we move forward we will take advantage of all financial planning opportunities a bear market presents including lower mortgage rates, tax loss harvesting opportunities, and the ability to invest new cash at a lower basis. On a brighter note, the CDC noted that while the virus is quite transmissible, it is not as severe as it first appeared, impacting the elderly and those with chronic health conditions the worst. It is not as impactful on children. Hopefully the warmer temps of Spring will create a shortened life for COVID-19. |
