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Stocks Are Breaking Records, but Not the Kind Investors Want
Dear Great Lakes Wealth Clients & Friends,
Truth be told, each day feels like an unprecedented, historic moment to us. Not only are we being asked to change our daily lives to curtail the spread of COVID-19, but we have to contend with the whiplash that unfortunately comes with bear market volatility.
In the past week alone, investors witnessed the S&P 500’s worst daily decline since Black Monday – the index has slid 30% in the weeks since its February 19 high. We also saw swings of more than 4% for eight consecutive days – another historic moment in the domestic stock markets. On the bright side, we’re also playing witness to a global effort to band together to protect ourselves and one another from further spread of the virus and its impact on the economy. More than a quarter of the country has been ordered to stay home and many corporations voluntarily reallocated their resources toward production of crucial supplies and medical interventions. The effort by policymakers, corporations and consumers gives us hope for the future, especially over a longer time horizon.
The Federal Reserve (Fed) has taken quick action, announcing two emergency interest rate cuts to bring the overnight lending rate to zero, restarting asset purchases and taking several steps to boost liquidity in the credit markets. It’s clear the central bankers here and abroad are taking their role seriously and will do what they can to ensure the stability of their economies and the financial markets.
Lawmakers in Washington also moved to act swiftly, working on a phased fiscal stimulus plan, first offering $8.3 billion toward specific healthcare measures, and then another $100 billion to provide free testing, food assistance, paid sick leave and unemployment insurance. We believe the next wave will address large-scale issues faced by small businesses and distressed industries (e.g., travel, leisure), as well as put cash directly into the hands of taxpayers. All told, this will likely be the largest stimulus bill in our nation’s history. Though it may not be enough to offset the impact of COVID-19 on the economy, it should lessen the damage and help support the eventual recovery.
It is unnerving to bear witness to such rapid change and uncertainty, and it’s understandable that global equities are on the defensive. We believe there’s a strong chance the tide will turn for the better before Memorial Day. If so, we might see a robust economic rebound over the second half of the year, as consumer spending returns and businesses add staff again.
While no one can predict when the stock market will begin to stabilize and even rise, it’s important to remember that the markets are generally forward-looking and will start to rebound long before economic data and corporate profits find a trough. Long-term investors may want to patiently and thoughtfully add partial positions now, to take full advantage of the rebound. Having concerns when volatility affects your portfolio is normal and is why we emphasize the importance of a tailored financial plan that accounts for the occasional vagaries of the market while making strides toward your long-term financial goals. As your advisor, Great Lakes Wealth is here to provide you not only with insight, but with advice on how to manage the effects and opportunities of the markets’ movements.
Bottom Line – the unprecedented decline in the global stock markets has created a generational buying opportunity. We have already begun to buy, but we will look to go “all in” once:
- COVID-19 peaks in Italy.
- We are able to go back to “social distancing” from “lockdown.”
- When the U.S. government commits to help stabilize American companies.
- When we hear from public companies in April about their current and specific situations.
We know we are living in strange times, and we hope that you are taking the necessary precautions to protect the collective community and ensure you and your family stay well during these weeks of uncertainty. Please know that we are wishing you and yours continued health. Feel free to reach out if we can answer any questions for you. You can also visit our website to securely view your accounts anytime at www.greatlakeswealth.us.
Thank you for your continued trust!
Your Investment Team at Great Lakes Wealth