May 1, 2020
As a firm, we began working from home just before our county issued the shelter in place order, which was six weeks ago. It feels like such a long time ago, yet like yesterday as well. Four weeks typically flies right by in the stock market without much movement, yet we have seen unprecedented market moves both down and up in recent four week cycles.
Let's revisit a 35% market swing.
Towards the end of February the S&P 500 hit an all time high and then we witnessed a 35% drop in the following 4 weeks as Covid-19 brought the world economy to a halt. The stock market does not like uncertainty and the pandemic provided, and still provides, a heavy dose of just that. Investor fear turned into panic selling, and that took it’s toll very quickly. That was the first 35% change in 4 weeks. Here we are just a short 4 weeks from that low point and the S&P 500 is back up 35%.
How has the market recovered if we are still in the middle of the pandemic?
The very short answer is that when the market corrects it typically overcorrects shortly thereafter, which is very likely given the high emotions associated with the pandemic. At the same time the government has literally thrown trillions of dollars at this crisis, cut interest rates to near zero, and implemented quantitative easing.
What can we expect from the market going forward?
There is still plenty of uncertainty as we look to the future and just how the economy will restart and what that process will be; at this point it is science vs. virus. We would expect to see the markets continue to be volatile as we move through the next few quarters. In fact, we would not be shocked to see large swings in the market as we continue to navigate our way through the pandemic.
What should we do with our investments in the meantime?
We do not recommend chasing the market, but we should expect to see future buying or reallocation strategies as the market becomes reactive again. You do not need to take any immediate action - we will continue to be diligent in our efforts to stay informed and will continue to make adjustment to portfolios as needed.
