After we endured the 2008-9 Great Recession, where the global economy was brought to its knees (due to enrichment schemes by Wall Street and its brokers), we thought we’d seen the worst market in our lifetimes. Some of us thought the same thing during the Tech Wreck at the start of the century.
Last week confirmed that we’re now traveling together through the third “once in a century” market event in the 21st century’s first two decades. On Monday the S&P 500 index tumbled 12%, breaking through the now-familiar stock exchange circuit breakers. Tuesday brought a ray of hope as the index gained 6%—which would, in any other market environment, be considered a remarkable one-day gain.
Then the roof caved in again. Wednesday saw the S&P 500 drop 5.18%, followed by a small 0.47% gain, and then, on Friday, another 4.34% loss. Just a month ago, the index was recording all-time highs; now we have experienced two of the worst market weeks since 2008. And Monday didn’t exactly start this week on a positive note.
The reason that traders are running for the exits is, of course, the unpredictable course of the Covid-19 virus. You don’t have to be told how our social distancing lockdown is disrupting economic activity; this is almost certainly the first time anyone in the X, Y, Z and Baby Boom generations has seen empty grocery aisles, shuttered restaurants and theaters, and empty corporate offices as people in all walks of life are told to work from home. You can see the progress of the virus in various countries in the attached graphic. All of us can view the real time movements of the disease in various dimensions on the Johns Hopkins and Medicine Coronavirus Resource Center website (https://coronavirus.jhu.edu/map.html). The bottom line is that the number of cases is still increasing dramatically, despite a near-lockdown of our society.
The federal government has not been completely inactive during the crisis. You already know that the Federal Reserve Board has dropped its rates to near zero in order to make it easier for banks to lend money to corporations. More recently the Fed has pledged to reinstate its QE program, which means (for now) buying at least $500 billion of Treasury bonds and $200 billion of mortgage-backed securities—which can be seen as an attempt to drive down interest rates more broadly. The problem, of course, is that loans are not a cure for economic activity that is shut down.
Meanwhile, the Internal Revenue Service has scrambled to provide relief of its own, extending the date that people have to file their tax returns from April 15 to July 15. The deadline for making contributions to an IRA, Roth IRA and Health Savings Account have also been extended to July 15, but right now nobody seems to know whether people filing for an extension will have to file six months from April 15 or July 15.
Another area of confusion: people who are required to make quarterly estimated payments have seen their April 15 due date extended to July 15, but the second quarter estimated payment is still, as of this this writing, due on June 15.
Are there any strategies to deal with situations like this? If you have a year’s worth of your expenses set aside in cash, then you have the means to simply live out the downturn without locking in the losses the market has already delivered or new ones that may arise when the second quarter GDP numbers come in negative and the economists declare a recession. The markets recovered nicely and tested new highs after the last two downturns, and companies are almost certainly not 30% less valuable today than they were in January, no matter what the market valuations are trying to to tell us.
More importantly, self-quarantining, working from home, avoiding physical contact with others and social distancing are clearly the best strategies to mitigate this epidemic, even if they are sometimes hard to follow. Remember that something more important than money is at stake here: peoples’ lives, and the hospital system’s operational capacity.
Just as important is to keep your sanity. Hard as it might be in these incredibly stressful times, recognize that, just like the ancient plagues that ravaged the world in days of old, this one will pass. Our hope is that you will take time to walk outside, and look for ways to find joy every day.
Someday, it will be a remarkable story to tell your children or grandchildren, who will marvel at how tough we were that we could move ahead with our lives in difficult circumstances. Please accept our prayers, best wishes, and help if and when you need it.