Well, that sure escalated quickly! The old saying is that markets go up on an escalator and come down on an elevator. Over the long-term this month and perhaps this entire year will be an elevator trip to the lower floors. But if history is any guide (and is there any better guide?), the long and relentless march from the lower left of the chart to the upper right will continue. Nothing has ever stopped that march, and I doubt this virus and lower oil prices will either.
As I write this morning, the death toll from Covid-19 reached 4,749 worldwide. And it is going to go up. And the precautions the world is taking will no doubt negatively affect the economy. How negative and how long is anyone’s guess.
What we do know without guessing is where the US economy was at the time this virus hit. We were at just 3.5% unemployment (February), and initial jobless claims were 216,000 the last week in February—long after the virus panic was settling in[1]. Retail sales were up 4.4% versus a year ago, and sales of cars and light trucks were up 1.9%[2]. Housing starts for December and January were very strong, coming in at an average annual pace of 1.567 million per year[3].
The Atlanta Fed projects real GDP growth of 3.1% annual rate in the first quarter[4]. But that was before March data so that number will definitely come down—but that original estimate was very strong. I’m sure the second quarter will also be flat to negative. But imagine what the inventory replenishment will do in the second half of the year—by definition, it almost has to be strong.
The bottom line is that economically speaking, we went into this pandemic very strong. The economy will take a short-term hit, and many people will get sick, and unfortunately, there will be a surprising amount of deaths here in the US due to Covid-19. And let’s face it when a death hits your family it is tragic. It hurts. And it isn’t helpful when someone minimizes the number of deaths when it visits your family. We all get that—but when speaking about a country with 331 million people, 38 deaths is not a large number.
This virus will pass and we all hope that the virus leaves as soon as it appeared and doesn’t hit anyone we know. While we wait for it to pass, stay safe and healthy, and please don’t worry about your portfolios.
We have always preached diversified portfolios and we keep plenty of liquidity or money in conservative positions that we can wait this market panic out without selling at fire sale prices. We can even buy, rebalance, or dividend reinvest at very low prices. Predicting when this market will turn around; that, we can’t do. It might be tomorrow, next week, next month, or next year. But I can say, without worry, that it will turn.
Please call me if you have any worries. My office number is 410-810-0735, and my cell is 410-490-9415. Thanks for reading. Marty
[1] https://finance.yahoo.com/news/february-2020-jobs-report-department-of-labor-213308108.html
[2] https://tradingeconomics.com/united-states/retail-sales
[3] https://www.census.gov/construction/nrc/pdf/newresconst.pdf
