2020 First Quarter Market Update -“Nothing new under the Sun”
A Look On the Bright Side
Throughout this market meltdown, we are committed to keeping you updated. That is why for the foreseeable future we will be producing a market commentary weekly. Additionally, we know there are an incredible amount of negative headlines right now so we will be doing our very best to share some positive headlines!Here is a link to a fact checking article that looks at some of the most prominent good news claims we have all heard about Covid-19. Most of them are verified as factual.
Some good news on the COVID-19 front? We fact-checked 10 positive coronavirus claims.
Nothing New Under The Sun
Imagine a time when war is being waged around the world. Some of the most heinous weapons ever conceived are being released on young soldiers in a war with seemingly no end in sight. As the bloodshed finally subsides and the world is ready to begin healing, the surviving soldiers begin to travel the globe returning home. Little did they know many of them were carrying a deadly virus that would spread across the globe and cause perhaps even more pain and suffering then the war itself. Families have forgotten what “normal” life is like. Fear and panic rule the day.
This sounds like a dramatization. A fictional doomsday scenario but it is our history.
I am of course referring to World War 1 and the Spanish Flu Pandemic. The death toll from these two events is truly terrifying. It is estimated that there were around 40 million casualties in WW1(1) and most estimates credit the spanish flu with 50-100 million deaths.
The phrase “There is nothing new under the sun” has become somewhat of a cliche. Like most cliches, there is a measure of truth. We know that the world has never witnessed COVID-19 before but we have experienced similar trials and tribulations. I don’t want to downplay this pandemic. It is having a profound impact on how we live our lives. Stock markets will be bumpy for a while, some businesses will close their doors for good, and some jobs will be permanently lost. The reason I am comparing COVID-19 to WW1/The Spanish Flu is to demonstrate that we have been through very hard times before and we will make it through this.
Not long after the U.S. entered the fold World War 1 ended its five years of misery. Like WW1 we will fight this enemy with all our resources. We will as a nation accept nothing less than complete victory. We have the world's greatest scientists, medical professionals, and corporations. Those groups are working together to unleash innovative new tests, treatments, and vaccines. We were not ready for this virus but we will win and life will return to normal.
Unfortunately when the war ended on November 11th, 1918 it gave way to the travesty of the Spanish Flu which did not subside until February of 1919.
During 1919 the Dow Jones surged 30.45%(2). The market flourished despite the fact that then President Woodrow Wilson’s public response to the disease was almost non-existent. As John Barry puts it in his book “The Great Influenza: The Story of the Deadliest Pandemic in History”
“Wilson took no public note of the disease, and the thrust of the government was not diverted. The relief effort for influenza victims would find no assistance in the Food Administration or the Fuel Administration or the Railroad Administration. From neither the White House nor any other senior administration post would there come any leadership, any attempt to set priorities, any attempt to coordinate activities, any attempt to deliver resources.”
From a financial standpoint, the government's response to COVID-19 has been quick and dramatic, to say the least. The federal reserve has slashed interest rates and has committed to “unlimited” asset purchases. Additionally, the bipartisan “C.A.R.E.S. Act” was passed on March 27th which will provide $2.2 trillion in stimulus. The Federal Reserve, State Governments, and the Federal Government seem ready and willing to do whatever it takes to ease the pain of this Pandemic. All of this effort and stimulus combined with the fact that the stock market has proven to be resilient leads us to believe humanity and markets will emerge from this pandemic all the wiser.
After the great recession of 2008 and 2009 governments around the world took regulatory action to try and prevent a similar global financial crisis. COVID-19 will likely spark a similar response through the funding of preventative measures like increased research on preventing and stopping pandemics, increased stock piles of medical supplies, creation and expansion of pandemic response teams, the creation of a medical reserve corps, etc. All of this will make us much more prepared for the next disease that rears its ugly head.
Now let’s take a look at what occurred in the markets in the first quarter of 2020. The quarter began with a similar upward trajectory that it experienced throughout most of 2019. Reports about the spread and severity of Coronavirus near the end of February changed all of this.
From February 19th until March 23rd the stock market was in an almost free fall. In fact, the S&P 500 set a record for the fastest 30% drop in its history. Fortunately, the above mentioned fiscal and monetary stimulus helped to calm the panic and the Dow Jones recorded its largest single day percentage gain since 1933 of 11.37% on March 24th. The free fall not only stopped but reversed. The chart below shows the severity of the moves in the S&P 500 year to date (YTD).
Following the free fall and in anticipation of fiscal and monetary stimulus the S&P 500 surged back over 15% from March 23rd until the end of the quarter.
Although this rebound was significant the S&P 500 ended the quarter down 19.60% and most of the other major stock indexes fared even worse (see below).
I am sure you have noticed by now that we are trying to remain positive and optimistic through these tough times but we would be doing you, our clients, a disservice if we pretended like all was well. The truth is COVID-19 is going to get worse before it gets better, stock markets are going to continue to jump up and down for sometime and NO ONE knows how long this is going to last. We do, however, know that markets are very forward looking and will likely be looking for the sun to rise well before the headlines indicate. As investors we need to be mentally prepared for volatility. Prepare to ride out this storm. If we remind ourselves of the incredibly tough times the market has not only survived but thrived through it can help us stay the course and not panic. Remaining disciplined to your long term plan is more important now than ever. If you are struggling with the idea of sticking to your plan please reach out to us. We want to talk to you and help you through this. We pray that you and your family remain safe and even find joy in these uncertain times!
*Indexes Used for Asset Class Performance
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Written by Brandon Carter and Brice Carter