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May 12 2020 Market Update

By on May 12 in Economics, Finance, Financial advisors, Market Update, Worth sharing

An April Uptick: But What Comes Next?

Markets rose in April, delivering the best month for stocks in three decades. The S&P 500 posted a nearly 13 percent gain for the month, despite a drop on April 30.

That drop was driven by a growing body of information detailing the extent of economic damage caused by the pandemic. In this newsletter, we’ll cover some of the key areas of the economy that have been impacted and provide some context for what investors can expect moving forward.

Employment Expectations

The impact of the crisis is perhaps most poignantly illustrated by the unemployment data. [1]  Employers cut 20.5 million jobs in April, pushing the unemployment rate to 14.7 percent. This is the highest unemployment rate in America since the Great Depression.

The Labor Department has noted that the unemployment rate would be almost 5 percentage points higher if “furloughed” workers had properly marked themselves as unemployed.

Job losses have primarily affected lower-income workers in retail, hospitality, and the restaurant industry. However, there are indications that the tide is spreading towards white-collar jobs, and an increasing number of businesses are making layoffs permanent.

Going forward, there are growing concerns about a second wave of infections, which could prompt further shutdowns. This would have an impact both on job security and an eventual recovery.

What does this mean for you?

If you or a family member have experienced job loss or have any concerns about your job security, now is a critical time to call our firm to determine how we can be of assistance. While we cannot impact what happens at work, we can help you prepare for the future.

Economic Growth

The sharpest decline in consumer spending since 1980 pushed down US gross domestic product, a measure of economic output. In the first quarter, GDP fell by an annualized rate of 4.8 percent, ending 11 years of expansion.[2]

Consumer spending represents a significant portion of economic growth (roughly 68  percent of GDP),[3] so where consumers go the economy follows. With spending down as Americans experience job losses and uncertainty, the second quarter will likely be even more negative.

Bloomberg Economics projected GDP to fall by a 37 percent annualized rate.[4]

Conversations around a V-shaped rebound have largely disappeared.[5] The reality is that we could see a much slower recovery – again, over the course of a few years rather than months.

What does this mean for you?

How does this impact your portfolio and your life? Some industries are likely to be harder hit than others, which creates the potential for both risk and opportunity.  As always, these are individual issues, and many of the conversations we’re having with you and other clients have revolved on the particular sources of risk and reward for you.

Economic Policy

Federal Reserve Chairman Jerome Powell has already indicated the Fed’s plan to keep interest rates near zero until the economy is on firmer footing. By some estimates, this could keep rates down for three years or longer.[6]

Chairman Powell has also urged lawmakers to deliver more fiscal stimulus to help the US economy withstand the pandemic. As of May 8, 2020, there are no plans for further stimulus, with White House economic advisor Larry Kudlow indicating that the administration would take a wait-and-see approach.[7]  

What does this mean for you?

Assuming it remains at its current level, government debt in the US could reach 101 percent by the end of this fiscal year, up from 79 percent last year.[8] Eventually, we could see tax consequences on businesses and individuals. While it’s not clear what this would look like, we do think it makes sense to start thinking through the possibility of higher taxes in the future.

These policies could also impact interest rate levels. We’ve noted above the expectations for interest rates, which could also be influenced by the need to pay for stimulus. For example, after World War II, large economies suppressed interest rates below the rate of inflation to help manage wartime debt – it’s possible we could see something similar in the coming years.

Managing Stress – and Your Portfolio

All that said, despite a positive month for markets in April, we expect to see continued volatility through the year. We think it’s important to keep a big picture view of the potential scope and impact of the pandemic – and the possibility of a slower return to normal than many expected.

That said, it’s not all bad news. You’ve probably heard it before, but in an economic crisis one can also find opportunity. It’s our job to help you navigate this crisis to help mitigate the negative impact – and to help you locate and assess sources of opportunity.

Especially if you’re feeling increasingly worried, please reach out to us for a conversation. It can be hard to manage a 24-hour news cycle at the best of times, but in times like these it is all too easy to let worry into the driver’s seat. We’re working hard to serve you throughout the crisis, and we’re here to talk through your personal situation anytime.

JSF Financial

 


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

Investment advice is offered through JSF Financial, LLC, which is not a subsidiary or control affiliate of MACC.

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The Bloomberg Barclays U.S. Aggregate Bond Index measures the investment-grade U.S. dollar-denominated, fixed-rate taxable bond market and includes Treasury securities, government-related and corporate securities, mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities.

The S&P 500 Index is an unmanaged, market value-weighted index of 500 stocks generally representative of the broad stock market.

The MSCI World Index is a broad global equity index that represents large and mid-cap equity performance across 23 developed markets countries and covers approximately 85% of the free float-adjusted market capitalization in each country.

The MSCI Europe Index captures large and mid cap representation across 15 Developed Markets countries in Europe and covers approximately 85% of the free float-adjusted market capitalization across the European Developed Markets equity universe.

The MSCI Emerging Markets Index captures large and mid-cap representation across 26 emerging markets countries and covers approximately 85% of the free float-adjusted market capitalization in each country.

Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period. GDP is the most commonly used measure of economic activity.


Sources:

[1] This section: https://www.bloomberg.com/news/articles/2020-05-08/u-s-jobless-rate-triples-to-14-7-in-sharpest-labor-downturn?srnd=premium&sref=c4RUGNV1

[2] https://www.bloomberg.com/news/articles/2020-04-29/u-s-economy-shrinks-at-4-8-pace-signaling-start-of-recession?sref=c4RUGNV1

[3] https://www.whitehouse.gov/articles/depth-look-covid-19s-early-effects-consumer-spending-gdp/

[4] https://www.bloomberg.com/news/articles/2020-04-29/u-s-economy-shrinks-at-4-8-pace-signaling-start-of-recession?sref=c4RUGNV1

[5] https://www.bloomberg.com/news/articles/2020-05-08/u-s-jobless-rate-triples-to-14-7-in-sharpest-labor-downturn?sref=c4RUGNV1

[6] https://www.bloomberg.com/news/articles/2020-04-29/fed-sees-medium-term-pandemic-risks-keeps-zero-rate-pledge?sref=c4RUGNV1

[7] https://www.bloomberg.com/news/articles/2020-05-08/trump-says-no-rush-for-more-relief-after-20-million-jobs-lost?srnd=premium&sref=c4RUGNV1

[8] https://www.bloombergquint.com/markets/investors-beware-pandemic-s-long-term-pain-just-becoming-clear

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