Although some might take credit, most advisors never saw the first quarter of 2020 coming. In fact, there was reason for cautious optimism that the great bull run, while slowing, was still running.
When the Federal Government stepped in to close traffic in and out of the US, it was, by then, very apparent that this was a new and perhaps truly unimaginable economic, cultural, and moral debacle.
As the first quarter ended, the market had gone from a DJIA of almost 29000, to a low of somewhere in the high 18,000. Terms like “shelter in place” and “social distancing” were quickly absorbed into the everyday vocabulary of America.
It is no wonder then that the second quarter of 2020 was an unknown quantity. Would we see an immediate recovery, would it be prolonged, and would politicians refrain from exacerbating the problem in order to position themselves for a November general election?
Do you remember that old saying about the month of March, “in like a lamb, out like a lion”? Well, April was in like a lion and out like a bigger lion. The market ended April up approximately14%!
A contributing factor to the resurgence of the market is the fact that the federal and the state governments recognized the need to both employ mitigating rules to curtail or control the spread of the virus, but also to encourage people to get back to work as soon as it can be done safely. Restated, the governments gave hope and encouragement to people unemployed, employed but working from home, and those who were deemed essential.
The rallying cry became, “let’s get America back to work”! This is what we do in a capitalistic society. And while the federal government passed laws, handed out money, and tried hard to ease the situation by postponing tax filing, offering credits, and guaranteeing the possibility of loan forgiveness for employers who keep employees on the payroll, it was and is obvious that getting back to work is an enormous step in the right direction.
After April it is a fair question to ask, “are we out of trouble?” and the answer is probably, no. there are several components to a healthy recovery, a recovery that equals or exceeds the state of the economy that we ended 2019 with.
We need to see the cost of a barrel of oil recover. While it is nice to have cheap gas, that is an industry that currently has no market ,has laid off employees and has seen competition from other countries sell barrels at a loss just to sell it- and keep America on the sidelines and from exporting oil.
If you ask an elected official who works inside the DC beltway, you will hear optimism that full recovery will happen soon. If you ask an economist when we will see recovery, the answer is likely to be years, not months. So just what is the answer? It is probably somewhere in between. To make or buy a product, you must have a market. Since the global economy is suffering along the same lines as the US, then the supply chain of makers and buyers is broken or under stress. Until buyers and sellers both get back to work, it is not likely to see much change.
For our country to recover, the entire global economy needs to recover.
May and June will help America assess the velocity of recovery both here and globally. But the key is how soon we will reduce that grossly high unemployment number by putting people back to work. And, equally importantly, is Asia and Europe following suite in the recovery process.
2Q20 promises to be exciting, agonizing, and frightening all in a 90 day window of time.
It will be an interesting ride.