Bracing for a Tough Time Ahead - Marty Moore, Carroll Financial
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April 1, 2020

Bracing for a Tough Time Ahead

Author: Marty Moore, CFP®

Bracing for a tough time ahead…

I got to thinking recently about the terror attacks of 9/11 and the parallels that might be drawn between what was happening then and what we are experiencing now.

 

When the twin towers and Pentagon were struck, along with another plane crashing in Pennsylvania, it took us a while to even comprehend what was going on.  Once we began to understand that we were under a terror attack we immediately knew the world had changed.

 

We knew our way of life would never be the same.

 

When 9/11 occurred, the stock market closed and did not reopen until 6 days later on Monday, September 17th.  On that day the Dow Jones Industrial Average dropped 684 points, at that time the largest single day point decline in market history.  By the end of the week the Dow had lost over 14%.  The S&P 500 was down 11.6%.  Airline stocks fell about 50%.  Banks and insurance companies also were slammed.  Investors were shell-shocked. (Source: Investopedia)

 

Then, as now, life and death issues were preeminent, overriding to any concerns about the financial markets.

 

When 9/11 happened the US was already in a recession.  The dot-com bubble of the late 90’s had burst and we were in the midst of a 3-year slide in the stock market.

 

Some say the tax cuts of 2001 and 2003 were the driving force to lead the US out of the 18-month recession during that time.  Others say they only helped a little and that normal correcting market forces led to an eventual bottoming out of the economy and a subsequent recovery.

 

The situation is different now because the recession is ahead of us.  A recession is less frightful than a yet-to-be-controlled global pandemic, or terror attack, but the financial impact is already being felt.

 

For the upcoming recession (we may already be in it actually) it’s hard to know what will be the force leading us out.  The CARES Act and the stimulus it will provide will surely help but it’s not likely to be the cure all.  Normal market correcting forces will also come into play.

 

The US has the most diverse and adaptable economy in the world.  Adapting this time will be painful as the depth of the recession will likely be unprecedented in many ways.  At this point, estimates are being made but we can only guess as to how high the unemployment rate will go, how far corporate profits will drop and the depth and duration of a decline in GDP.

 

From the experts I’ve been listening to, including Dr. Anthony Fauci, President Trump’s main advisor on the pandemic, the peak of the virus is not likely to be reached for several weeks, maybe a month or longer.  The estimated number of eventual deaths is staggering, hard to even grasp at this point.

 

Expectations for the depth and duration of the recession is also staggering.  There seems to be a consensus opinion among economists that unemployment could possibly reach 30%.  Assuming the health experts are right and we begin to see the COVID virus statistics peak and begin to decline in the next 4-8 weeks, most financial experts believe that normal business activity can begin to resume later this summer or early Fall.  This seems to be a best-case scenario at this point.

 

As I have discussed before, we can’t assume though that the stock market will move in lockstep with the economy.  Last week, on a day when a record 3.5 million weekly jobless claims was announced and the number of virus infection totals in the US eclipsed China, the market rose over 6%.  In fact, last week the market was up 10.3%, the biggest weekly gain in 11 years. (S&P 500; Morningstar, Inc.)

 

Last week’s advance was a good sign but it does not mean that we’ve hit bottom and we’re now on our way back to fully recovering the S&P’s 34% decline from February 19 to March 23. For historical perspective, there were five times when the market rose over 10% during 2000-2002 recession before the finally bottoming in early 2003.

                         Source: Ben Carlson; Ritholtz Wealth Management

 

For now, we continue to recommend holding steady as the best course of action.  We’ll continue to rebalance accounts when and where it makes sense and to evaluate capturing tax losses when we can.

 

Some good news…

For me, the most positive recent trend was not the strong move up in the stock market over the past week or so, it was the sense of urgency that is taking place on many fronts in combatting the virus.  From the new, more cautionary tone being adopted by President Trump to the efforts being made by private industry, local groups of all shapes and sizes, as well as individuals, to do what they can do help in this crisis, we can now know that the vast resources our country has at its disposal is being marshalled to win the Coronavirus war.

 

They used to make MLB uniforms.  Now they’re making medical masks and gowns.

https://www.cnn.com/2020/03/28/us/fanatics-mlb-masks-coronavirus-trnd/index.html

 

Companies partner to make respirators, ventilators to fight coronavirus.

https://www.usatoday.com/story/money/cars/2020/03/24/ford-ge-healthcare-3-m-coronavirus-covid-19-ventilators-respirators/2907167001/

 

Charlotte Latin students raise more than $52k to print 3D face shields for medical personnel.
https://www.wbtv.com/2020/03/22/charlotte-latin-students-raising-money-print-d-face-shields-local-medical-personnel-treat-covid-patients/

 

Numerous companies now working on COVID-19 vaccine.
https://www.marketwatch.com/story/these-nine-companies-are-working-on-coronavirus-treatments-or-vaccines-heres-where-things-stand-2020-03-06

 

As it has been at times in the past, don’t ever underestimate what the people of this country are able to do in times of crisis.

 

Lastly I’m providing a link to an article written by Josh Brown, a financial advisor in New York.  I would encourage you to read it – takes only about 2 minutes.  I would, however, especially encourage you to pass it along to anyone you know (children, grandchildren or those you know) that are in this situation:

 

(Article excerpt): “If you’re in my age group and reading this, then it’s likely you’re at home right now, with children, doing your best to be a mom or a dad, as well as a homeschool teacher, while simultaneously trying to manage a business, be a remote employee or figure out your next gig for when this is all over.”

 

Life is Beautiful; by Joshua Brown https://thereformedbroker.com/2020/03/28/life-is-beautiful/

 

As always, thanks for reading.
 

Marty

 

 

 

 

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