Investors like labels for the economy and financial markets —many of them with the word “great” in them. The Great Depression. The Great Recession. The Great Lockdown. Well, we’ve moved into what we might call the Great Disconnect. How can stocks have rebounded so strongly in the last month amid so much suffering and economic damage? What’s Wall Street seeing that so many on Main Street are not?
For one, in the United States more than 20 states have already begun to reopen their economies, and others have plans to begin very soon. In Europe, lockdowns are being eased, following Asia’s lead. Even gradual progress like this may help the stock market focus more on what’s ahead than where we are right now.
As lockdown restrictions are lifted, timely indicators like vehicle traffic, electricity consumption, public transportation use, daily consumer confidence surveys, and a wide variety of weekly economic indicators point to a low mark in economic activity in the United States in April. The “Great Lockdown” recession of 2020 may be over already—although it may not be officially declared a recession for several more months.
Nowhere to go but up isn’t normally very reassuring, but to financial markets it may be. Historically, when things have looked their worst, the opportunity in stocks has tended to be the best. The S&P 500 Index has usually hit its bottom and started the climb back up about five months before a recession has ended.
Other factors have helped boost investor sentiment recently. Market participants have gained confidence from the bold stimulus response from policymakers in Washington, DC, and the Federal Reserve. The total amount of the stimulus this year is about 22% of the entire US economy, based on gross domestic product (GDP). During the entire 2008–09 financial crisis, the total amount of stimulus was 16.6% of GDP. And there may be more. Surging unemployment and weakening finances at the state and municipal levels may be catalysts for more action. Though millions of jobs have been lost to this crisis, many millions surely have been saved as well.
The medical community also has provided reasons for optimism. Though no one knows for sure when a COVID-19 vaccine will be ready, rapid progress is being made, and several promising candidates are now in human trials. Testing capacity has also ramped up, while some of the best capitalized and most innovative companies in the world are developing contact-tracing tools to help facilitate safe re-openings. While stocks may have come a bit too far, too fast in the short term, markets are clearly responding to these positive developments.
Reopening the US economy will be a gradual process, and temporary setbacks may be possible. Some of the lost jobs may not return. The possibility of disappointment as the “Great Reopen” unfolds is real. We are facing a tremendous challenge, but it is being met with incredible resilience, resourcefulness, and innovation. Together we will get through this crisis and return to better times.
Please take care, and don’t hesitate to contact your dedicated team at Epic Capital if you have any questions or concerns.
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It can be exhausting trying to keep up with the whims of Wall Street. Lately, the financial markets have been fixated on federal taxes and what may be proposed on Capitol Hill in the weeks and months ahead. Wall Street’s focus on taxes closely follows its attention on the 10-year Treasury yield. And it wasn’t … Continue reading “The Whims of Wall Street”
President Joe Biden introduced the much-anticipated American Jobs Plan, which outlines an approach to spend roughly $2.2 trillion on the nation’s infrastructure and other projects. As part of the legislative process, the Biden administration also laid out a proposal for paying for the domestic investment. The plan includes raising the corporate tax rate to 28% … Continue reading “Paying for the Infrastructure Bill”
Financially, many of us associate the spring with taxes – but we should also associate December with important IRA deadlines. This year, like 2020, will see a few changes and distinctions. December 31, 2021, is the deadline to take your Required Minimum Distribution (RMD) from certain individual retirement accounts.
There’s an old Wall Street maxim that says, “markets climb a wall of worry.” And these days, there’s plenty to worry about with the trend in long-term interest rates and bonds.
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