Markets

Special Market Update (03/20/2020)

3/20/20 12:37 PM

iStock-1150204868

The market has suffered a decline of 14% over the past week since the last Email Express commentary. Arguably, this has been the worst week for the market since the crash of 1929.

Importantly, most Slavic401k participant retirement accounts, while down, are down far less than the overall market. In extreme times like this, the value of investment diversification is proven to be very valuable. Your individual account, of course, will vary depending on how your investments are allocated.

This week has been a “roller-coaster” of extreme volatility. Yesterday, in comparison to earlier in the week, the wild gyrations were limited and all three of the primary Indexes (the Dow Jones, S&P 500 and NASDAQ) closed modestly higher. Today, as of this morning, the indexes are all modestly higher as well. Hopefully, this lower level of volatility means that the market is beginning to find its footing. In rough numbers, the market has lost about one-third of its value, falling from a recent record high of just under 30,000 to today’s levels of roughly 20,000 on the Dow. In my view, the market is one of the best indicators of future economic activity; it moves either higher or lower depending on its perception of the future. What the market is telling us is that the economy will dramatically slow down. In terms of jobs, we expect many layoffs, job consolidations and compensation reductions. Hopefully, the Coronavirus relief bills will help, but the level of consumer spending will decrease sharply, which is the main driver of the economy. All of this means that the recovery will probably take longer than most expect once the current crisis is over. Numerous economic stimulators from low interest rates, liquidity and Federal government assistance will boost the recovery, but at this point it’s hard to see how effective they will be.

I understand that these next few points may be difficult to accept, but they are important nonetheless. In the blink-of-an-eye, the market has lost one-third of its value and there is an uncertain future. What should you do with your 401(k) investment? First, try not to react emotionally or be in panic mode by moving to money markets or short-term bond funds. Most of the damage has likely happened already, so you would be locking in losses for the long term. Second, don’t stop deferring into your account; if possible, increase your deferral amount. Paycheck-by-paycheck, you will be buying into the market at one-third lower prices, so when the market eventually recovers, your account won’t just recover. Your account balance will disproportionately go up because of all the mutual fund shares you accumulated at today’s lower prices. Third, don’t take loans or distributions from your account if you can help it. Your 401(k) may seem like an easy source of money at this time, but it is coming at a high cost now from a market perspective, not to mention the potential extra tax you will pay.

Lastly, in this time of crisis we are here with you. Virtually all of our employees are working remotely at 100% productivity and efficiency, and importantly we are all well. Our investments in technology and security are paying unexpected dividends during this pandemic. All of us at Slavic401k earnestly hope you are well and stay well. Don’t hesitate to reach out to us, our average wait time to answer customer service calls is still just a few minutes. Thank you for your patience. My thoughts and prayers are with you.

John Slavic


 

Post author: John Slavic

Disclosures