First off, I hope that you are all safe and healthy as we work through another week of getting a handle on what is to come. This week, in my first blog post for Konvergent Wealth Partners, we will be discussing what we saw last month with the markets and how unprecedented it was, what we are seeing in the data this week with the virus and markets, and what we expect to come in the near term for the economy.
What Happened Last Month
The big headline is the impact of the Coronavirus on our personal lives and the economy. You can see in this chart how things reacted as we learned more and more about the virus and how serious the impact would be. With so much uncertainty on what the short and long-term impacts of the virus would be on our health and the economy, the markets reacted severely.
The second major damaging economic impact come from an oil price war that broke out between Russia and Saudi Arabia, dropping oil prices to near $20 per barrel. While lower oil prices might seem good for consumers, it is bad for many oil producers and creates some risk on their ability to pay their debt obligation if the price doesn’t return to $40 soon. We have recently seen some level of a bounce back in oil prices in the last few days but there is a long way to go before we are at levels that are sustainable for most oil producers.
All this led to the fastest bear market in US history, taking only 16 trading days to go from all-time highs to bear market territory. We did see a bit of a bounce near the end of the month once the stimulus package was announced but we are still about 20% below the all-time high and we are just starting to get a sense for what the economic damage will be.
What Is Happening This Week
The news over the weekend on the virus seems to be lifting expectations for a quicker recovery with expected hospitalizations and deaths from the coronavirus across the country are coming down. I have included a link to the IHME COVID-19 Projections (https://covid19.healthdata.org/). They made a recent update that adjusted a lot of their projection down.
While this is encouraging news on the virus, many states have still extended their “stay at home” orders through April and some into June as they try to make sure there is not a rise in cases right as they are getting a handle on the outbreak.
After 10 million in new unemployment claims over the last 2 weeks in March, we are likely to see another large number this Thursday as well as begin to get more economic data from March that will begin to show more of the economic fallout from the virus. To get a sense for how much of a challenge may be ahead I wanted you to see this visual of these claims over time and how far from normal we are. To help get a sense for how large of an increase we have seen I have included this animation of unemployment claims over time.
What We See Ahead
While it was nice to see the market bounce so much early this week, we are still cautious about how quickly the economy will bounce back and how quickly corporate earnings will rebound. As we start to get more data from March and as public companies begin reporting their earnings, we are likely to see continued volatility in the markets. Until we have a full understanding of the economic impact, which won’t happen until we have full confidence that the economy can get fully back up and running, our recommendation is to remain cautious and continue to collect more information.