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March 26 2020 Market Update

By on Mar 26 in Economics, Finance, Financial advisors, Market Update, Worth sharing

An Upswing in Markets and an Economic Intervention

Markets were sharply up as of Wednesday, March 25 on expectations that a stimulus bill would swiftly get through Congress.[1] It was the first back-to-back gain for equity markets since February. On Tuesday, the Dow Jones Industrial Average had its largest single-day gain since 1933.

As a result, this week has brought a feeling of relief to investors who are feeling some whiplash from the past couple of weeks. That said, we do think it’s important to look ahead and prepare for what might come next.

Here’s what we know about the bill so far and what we expect from markets in the coming weeks.

Key Provisions

Based on what has been shared with the public so far, the $2 trillion relief bill would provide:[2]

The sheer size and scope of this legislation dwarfs the measures taken in the wake of the financial crisis, which provided $800 billion in stimulus.[3]

Unemployment benefits became a key source of disagreement on Wednesday, and as of this writing negotiations continue.[4] This could hold up the stimulus package further, and to that end we could see additional market volatility as the situation develops.

Managing the Road Ahead

Considering the immense market swings we’ve experienced in the past couple of weeks, this week’s upward path offered a bit of relief. However, we think it’s important to remember that bear markets are characterized by volatility, which can suddenly send prices both up or down.[5]

We do expect the volatility to continue in the short term. In other words, this is a time where the adage “don’t let your highs get you too high or your lows get you too low” very much applies.

That said, the fiscal package combined with a reported $4.5 trillion in lending power by the Federal Reserve could help to shield the economy from the worst of the pandemic’s effects.[6] We are almost certain, however, to see significant economic costs in the short run. Goldman Sachs estimates that economic output could fall 24 percent in the second quarter, while some Fed estimates have the unemployment rate potentially growing by 30 percent.[7]  

This doesn’t account for the human and emotional costs of COVID-19. While efforts to contain the virus have ramped up significantly across the country, we could still see more damage before the spread is contained.

What Happens Next

The magnitude of the economic damage, at least, and the speed of a rebound are obviously dependent on numerous factors, but generally speaking this isn’t a “normal” recession. This is a severe external shock, rather than a structural issue in the economy.

With the unprecedented amount of support coming from the federal government, we hope the economic damage can be limited to a short period of time. That said, it’s important to remember that we could still see a lot of volatility in the short run as markets respond to developments in the spread of COVID-19 and efforts to contain the human and economic fallout.

Please Reach Out

We are here to provide you with support, information, reassurance, and guidance through this difficult time. We know that many of our clients are worried for their families and loved ones, and we know just how stressful the market news can be in what is already a difficult time.

Please don’t hesitate to reach out with your questions or concerns. Thanks to modern technology, you can contact our office and still be assured that you will reach the person you need. We’re here, and we’re working hard to help you navigate this crisis so you are poised to thrive again in the years ahead.

JSF Financial

 


Securities are offered through Mid Atlantic Capital Corporation (“MACC”) a registered broker dealer, Member FINRA/SIPC.

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[1] https://www.wsj.com/articles/global-stock-markets-dow-update-3-25-2020-11585106923?mod=hp_lead_pos1

[2] https://www.bloomberg.com/news/articles/2020-03-25/white-house-senators-strike-deal-on-massive-stimulus-package?srnd=premium

[3] https://www.bloomberg.com/news/articles/2020-03-25/white-house-senators-strike-deal-on-massive-stimulus-package?srnd=premium

[4] (as of 4pm PST on Wednesday, March 25, 2020): https://www.bloomberg.com/news/articles/2020-03-25/bipartisan-deal-sets-up-stimulus-vote-in-senate-congress-update?srnd=premium

[5] https://www.bloomberg.com/opinion/articles/2017-08-28/bull-and-bear-market-volatility-look-very-different

[6] https://www.bloomberg.com/news/articles/2020-03-25/fed-s-anti-virus-lending-firepower-could-reach-4-5-trillion?srnd=premium

[7] https://www.nationalreview.com/2020/03/coronavirus-economy-very-slow-recovery-likely/ and https://www.bloomberg.com/news/articles/2020-03-25/bullard-doesn-t-see-economy-ramping-back-until-people-feel-safe?srnd=premium

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