How Do We Unlock the Lockdown
At least 316 million people (or more than 96% of the U.S. population) in 42 states are currently under a stay-at-home or shelter-in-place order as the coronavirus pandemic continues to upend life as we know it. However, as California’s Governor Gavin Newsom stated just last month, “This is not a permanent state, this is a moment of time,” and the good news is that we are seeing hopeful time-frames for reopening:
In the meantime, our economy is in an absolute tailspin due to the national lockdown, and Great Depression-esque numbers are expected for the second quarter:
- A total of 26 million Americans have filed for unemployment benefits in the past five weeks. That translates to a national unemployment rate expected to be as high as 15 or even 20% as a result of the pandemic that has forced millions of businesses to shutter and lay off employees, significantly higher than the 10% peak seen during the 2008 financial crisis.
- The U.S. economy is facing its biggest contraction ever, as GDP for the second quarter is expected to show an annual rate decline of 40%! As a comparison, the biggest drop in growth in U.S. history occurred in 1932, when the economy contracted by 12.9% during the worst year of the Great Depression.
And while it might sound crazy to say, understanding these are nothing short of horrific numbers, there is a clear light at the end of the tunnel.
Why is the stock market (as measured by the S&P 500) up 29% over the past month? One simple answer: The stock market is not a reflection of the current economy. Investors are forward-looking and future-oriented, and they are buying in advance of, and belief in, better days ahead. It can be confounding to grasp when the current state of affairs seems so grim, but it is an essential point for longer-term investors to note and internalize. Since 1953 (with one exception), the S&P 500 stock index has bottomed anywhere from three to 11 months prior to the official end of a recession. In other words, as Warren Buffett said:
We encourage you to read Policy and Portfolio Impact of COVID-19 – A Talk With Dr. Ben Bernanke, as forceful actions by the Fed and bi-partisan Congressional stimulus packages have both led to a backstopping of the financial markets and a temporary de facto safety net for our economy.
The fact that the upcoming ugly U.S. economic figures and data are EXPECTED is especially important to note. While horrific, these numbers will come as no surprise to savvy investors, who understand that stocks almost always rebound before the economy does, and who understand that the market expects the pain experienced by the U.S. economy to be temporary. Questions remain about the shape of the economic recovery and the shape of our new lifestyles, but fortunately the correlation between the temporary nature of our economic pain and the temporary nature of our current shelter-in-place lifestyles cannot be denied.
In addition to anticipating the end of conscientious sequestering and the slow birth of economic recovery, there have been a number of non-COVID-19 newsworthy events over the past few weeks that you may have missed:
- The 2020 NFL Draft sets all-time viewership records, reaching a total of 55 million viewers over the three-day event
- Last Wednesday marked the fiftieth Earth Day celebration
- The Boston Red Sox escaped severe penalties in MLB’s cheating scandal, with Commissioner Rob Manfred concluding that the 2018 World Series champions’ sign-stealing efforts were less egregious than the Houston Astros’
- Vincent van Gogh’s Spring Garden was stolen from a museum in Amsterdam on March 30, and there is still no word on its whereabouts
- For the first time in decades, bald eagles and eaglets found nesting in the arms of an Arizona saguaro cactus
As we have mentioned previously, it is important to take comfort that better days are set to return. We will be with our full families again. We will be with our friends and colleagues again. Together. And as always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, email@example.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here for you.