Stabilization and Looking Ahead
While we are seeing the start of businesses reopening and establishing a new “normal,” with the uncertainty of the coronavirus’ full impact, we believe we are still in the “Stabilization” stage of this Bear Market. Moneta’s Chief Investment Officer, Bill Hornbarger, gives us three things to know and to watch for in the week ahead.
3 Things to watch
- Surveys from the Institute for Supply Management will be released on Monday (manufacturing) and Wednesday (non-manufacturing). This is some of the most current economic data. It will be closely watched for the impact of reopening state and local economies. Both numbers are expected to be better than April, but still showing contraction.
- Important readings on employment.
- First up – weekly jobless claims on Thursday and then non-farm payrolls on Friday. The unemployment rate is expected to set a second consecutive record of 19.6% while both initial and continuing jobless claims are expected to decline slightly. Continuing claims fell last week, the first decline during the pandemic. Remember that unemployment is a lagging indicator.
- Mortgage applications are released on Wednesday. After a tough April they rebounded strongly in May and are one of the bright spots as the U.S. economy reopens.
3 Things to Know
- Crude oil surged a record 88% in May, closing above $35/bbl for the first time since March. (Source Bloomberg)
- The shortest US recession in the last 100 years was the 6-month economic downturn that ran from January 1980 to July 1980 (source: National Bureau of Economic Research, MFS).
- After dropping more than 30% from last year in April, potential homebuyers have bee more active as restrictions ease. The index of mortgage applications for purchasing homes up almost 10% YOY in the latest reading. (Source: Mortgage Bankers Association – see chart)
Staying optimistic amid historic volatility
As we continue to work to flatten the coronavirus curve, we remain optimistic about the market’s resilience and stay steadfast in our investment plans. “Policymakers have made it clear that they will do whatever is necessary to support the economy and markets during this time,” said Moneta’s Chief Investments Officer, Bill Hornbarger.
Congress has reacted much more swiftly to 2020’s market challenges than in the past. Due to the efforts of policymakers during the last recession – the Global Financial Crisis (GFC) in 2008-09 – several policy tools were already available to address the current market environment. These actions did not go into effect until 80 weeks after the GFC of 2008-09 began.
This time around, Congress activated relief efforts only 11 weeks after the first reported coronavirus death in China. Just four weeks after that, legislation was signed to provide an additional $310 billion in funding for the Paycheck Protection Program (PPP), $60 billion of which is reserved for community banks and small lenders; $75 billion for hospitals; $25 billion to support testing efforts; and $60 billion for emergency disaster loans and grants.
One of the key characteristics of a good investor is resisting panic and euphoria. The unprecedented volatility and speed of the market’s changes may temp some to make emotional decisions about their financial plan, but it’s important to remember that market drawdowns of this magnitude are not uncommon. The economy and markets want to grow and these episodes are periodically part of that experience.
THE CARES ACT
The most recent bill, the CARES Act, is a $2.2 trillion emergency aid package providing significant tax and non-tax stimuli to individuals, their businesses and employer plans. Whether you’re an individual, a business owner or a retirement plan sponsor, follow the links below to learn more about what’s in it for you:
Last updated April 27, 2020
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