March 20, 2020
Triple Threat:
Health, Wealth & Confidence Crisis
Virus Affect…
Health, Wealth & Confidence Crisis
As of last night, there were over 240,000 those cases of Covid-19 worldwide. There had been over 9,800 deaths. The U.S. count was over 13,000 cases and 176 deaths. All of that according to John Hopkins Center for Systems Science and Engineering. No doubt, there are more cases and casualties by now. The coronavirus has caused a triple crisis: our health, wealth and confidence. On top of those with the virus, and worse yet, those who have died from it, everyone else fears contracting it. This outbreak has the potential to be the greatest health crisis in U.S. history. The wealth crisis is equally obvious. Just in 30 days the S&P 500 stock index has lost over 30%. The surrogate for the corporate bond market is down 20% in that time. Utilities, real estate investment trusts, gold… even bitcoin (which lost 31%), is down. Oil has crashed in price. All in just 30 days. Confidence has been crushed. People are not allowed to travel abroad. Most are forced to work and study from home. “Stay-at-home” orders by the biggest states in the nation are in effect. Consumer confidence is in a free-fall as jobs are lost, bills mount, and 40lK balances and other assets decline in value. People are not buying new cars. They are postponing most “big ticket” item purchases. And, near certain economic recession is lowering consumer sentiment.
Now the good news. Yes, there is some! China is doing things that sound like normal. The country is easing restrictions as new cases of the coronavirus are dropping sharply. For several days in a row, China has reported no new locally transmitted infections. Chinese are wearing less masks. More of them are back to work. They are out shopping again. Eating at restaurants. Traffic is back. You will hear similar news about America. We will be back to normal. More good news is the absolutely unprecedented action the U.S. Federal Reserve Bank has done to support the American economy. After two emergency rate cuts that knocked the federal funds rate down to a range of 0% to 0.25%, the Federal Reserve has been furiously buying Treasuries and government-backed mortgage securities to keep interest rates low. Purchases totaled $75 billion yesterday and the Fed planned to buy another $107 billion today. The total purchases this week exceeded $300 billion. For perspective, $160 billion was the most we saw the Fed do in any week during the financial crisis. This amount of fiscal stimulus is staggering. It is being called “Liquidity Infinity”.
Until things get better, the market’s volatility will remain high. FUD (fear, uncertainty and doubt) has s a firm grip on investors and the investment markets around the world. The Dow has now dropped 10% or more for the week in three of the past four weeks. The coronavirus correction is one of the biggest bear markets in over 30 years. The week ahead will tell us a great deal about the state of the economy and consumer. Fresh data on manufacturing and the service sector will be released Tuesday. Consumer sentiment will be reported Friday. But the big tell for the economy will be unemployment claims on Thursday. That number will be shocking. I expect it to be the highest ever.
Here’s today’s scorecard:
One of America’s most respected investment managers is Shelby Davis. Here is a bit of wisdom from Mr. Davis…
“History provides a crucial insight regarding market crises: they are inevitable, painful and ultimately surmountable.”
Hope this is helpful.
Thank you for your continued trust and confidence. I remain vigilant as I manage and oversee your investment account.
John