m amazed how adaptable we humans are. Two months ago no one had heard of this virus. Today many of us have lost our jobs and we’re hunkering down in our houses trying to stay away from anyone who could possibly pass it along to us. Humans are social animals, so not being able to gather at restaurants, or at our churches, or at the gym, has totally disrupted our normal routines. But we are changing our ways very quickly. We have to.
If this virus doesn’t stick around too long we may very well return to our old habits when it’s over. But if we have to live this hermit-like lifestyle for very long, it could change the culture for good. What if a lot of companies that survive discover that their employees can accomplish just as much from home? Will that reduce the need for office space? What if millions of people rediscover the joy of cooking at home? Will that lead to a permanent reduction in restaurants? Will many in our population draw closer to God and their faith? These questions are certainly something to ponder.
Even though I do think about such things, I mainly think about what effect the Coronavirus is having on the stock market and my financial planning clients. I handle the life savings of hundreds of good people. It’s important that I help preserve their assets so they can live a good, confident life in retirement. I have to get it right, for them!
So, how is the Coronavirus affecting the stock market? There’s no doubt in my mind the recent crash of the market is in reaction to the pandemic.
The market reached its all-time high on February 12th. The economy was humming along and we were planning on three percent growth in the GDP this year. But as the number of cases, and, more importantly, the number of deaths started piling up, it got the attention of investors and many started dumping their stocks. Since we are an active manager of assets, we started rolling out of stocks at the end of February and got the last 25% out on March 10th. Did we panic sell? No. Panic selling is dumping all your equity with no plan about when you will get back in. We do know when we plan to re-employ the money. But before I get into that, I want to share my observations about where I believe we are.
When the virus first came ashore in America, and it started being discussed that businesses would shut down, many pundits got on the air and talked about the fantastic jobs report just out. They surmised that because of the labor shortage, business would NOT lay off their workers because they’d want to keep them around so when the businesses reopened they would have their staff already on the job. Well, that may tell you something about the wisdom of the talking heads on TV! With record layoffs and many not knowing how they will pay the rent this month, the economy went from terrific to terrible in just a few days. No wonder the Dow shed 10,000 points over the course of just over a month. Then it made up about 3,500 points last week before dropping 900 of them on Friday. This week the market has been up and down, but mostly down.
So where does the market go from here? Anyone who says they know are telling a story. The stock market, while very efficient over the long-term, is massively inefficient in the short-term. With most of America closed for business, the market should plummet. But if people start to believe the social distancing we are practicing will be short-lived, they may want to be in the market now for the comeback. Emotions are running high. It could go either way. But at this time most of the earnings of the companies that make up the S&P 500 have disappeared.
Let’s look at it from the standpoint of real numbers. America is now the #1 country for the Coronavirus. The number of new cases around the world grew by 34% just over the final weekend in March. In this country the number grew by 67%. Part of it is most likely because we are doing more testing, but that’s still a big number.
As of Friday, April 3rd, this country has suffered 6,098 deaths. That’s out of 245,442 infected people. The H1N1 flu from eleven years ago saw 60.8 million infections with 12,469 deaths. We have already seen almost 50% of the deaths we got from the Swine flu with only 4/10 of 1% of the number of infected cases we saw back then. That is a staggering number! So it’s no wonder to me why our elected officials took the extraordinary step to basically shut down life as we know it in this country, and indeed, the world.
So what are we to make of the stock market? Well, even with the record two trillion dollar stimulus package, businesses are still shuttered, factory floors are empty and lifeless, and commerce is still on hold. Much of that commerce will not be made up later. Just because I don’t get a haircut this month doesn’t mean I’ll get two next month.
I realize that President Trump needs to be the nation’s cheerleader. It’s his job to talk up what the stimulus will do for the country and to make sure the population doesn’t fall into a kind of depression. So when the Democrats and Republicans come together to pass the stimulus package, Americans get happy and buy back into the market. But in looking at the numbers I see no reason to think the economy is going to come roaring back anytime soon. So we continue to keep our managed accounts in cash, out of the market.
But when will it be time to re-employ your assets in the market? I believe that we will get some signals, though no single signal will mark the beginning of the next bull market. Think about this for a moment. Are the highways still mostly empty? Can you go out to eat or attend church services yet? Can you go to a movie or the gym right now? As long as these things are still banned and there is no real timetable for when these freedoms will be restored, I expect the Dow and the S&P 500 to struggle. As the numbers related to the Coronavirus continue to spike, our freedoms and our nation’s commerce will continue to suffer. But there will come a day when the light will appear at the end of the tunnel. The virus numbers will start trending down and the politicians will begin to mention dates for reopening the country. That’s when we can look forward to a permanently climbing stock market. If you kept your money in the market, you will start the rebuilding process at that point. If we managed your assets and you sat out the downturn, we plan to enter the market at that point, hopefully with a higher asset level than you would have had if you’d ridden the market all the way down.
Some salesmen will tell you that you only have two choices... you either stay in the market and lose most of your money or you buy their interest bearing financial product and then be satisfied with a low interest rate. I’m here to tell you that there is a third choice. Get out of the market when it’s on its way down, then get back in the market when it on it’s way back up. Even though it may be easier said than done, it can be done.
Overall, I’m optimistic in the long run. We are America! We’ve seen hard times before. We’ve been through hard times and we always triumphed. We have the best scientists in the world. A vaccine will be developed and the Coronavirus will be relegated to a footnote in history. The stock market may be down, but by no means is it out. It’ll come roaring back like it always has. And when it does, we plan to participate. Give me a call if this sounds good to you. I can still talk to you on the phone.