The year 2020 has been marked by extremes. Through January 2020, the bull market, supported by strong corporate fundamentals, continued to move higher and investors appeared focused on record low unemployment and strong economic growth. In mid-February, the major U.S. market indices hit all time highs. But then, within just a matter of weeks, lost over one-third their values as the COVID-19 pandemic unfolded. Business closure and shelter in place orders rocketed through the nation causing unemployment claims to skyrocket to their highest levels in history. The economy went into a recession within a very, very short time period.
However, the COVID-19 pandemic is an unprecedented event, and the duration and full extent of the economic impact is unknow. At this time, confirmed COVID-19 cases are rising steeply and many states are rethinking their plans to reopen. But, when you look at past financial, political, and health crises with the benefit of 20/20 hindsight, history has demonstrated that our economy and financial markets have always rebounded and recovered … eventually. The economic recovery will be gradual and uneven, with full economic recovery likely not to be seen until 2022. The possibility for a double-dip recession is not out of the question yet.
The U.S. Government is utilizing both monetary and fiscal policy to a capacity never seen before. Washington passed the largest economic stimulus package in history, providing $2.2 trillion to help business and individuals, and they stand at the ready to stimulate more. The Federal Reserve has cut short-term interest rates to zero and has implemented its largest and most comprehensive asset purchasing program ever. Modern medicine and human ingenuity will likely help save many lives and eventually find a vaccine.
Historically, large stock selloffs as recently experience have presented buying opportunities for serious long-term investors. Because of the uncertainty of the pandemic and the closing/opening/re-closing a variety of business sectors, the equity market selloffs will continue – there will be plenty of opportunities to buy back into the market over the next several months.
Ask yourself what you wish you had done differently at the bottom of the 2015-16 cycle, the 2008-09 Great Recession cycle, or, if your firm was around, the 2001-02 or early-1990s cycles. While the drivers of recessions may differ, the fact that the US economy will ultimately recuperate, and rise remains the same. Do not fall victim to the pessimism of the moment and fail to position yourself for the future macroeconomic growth trend.