Finally, this week brought some relief from the sharp sell-off in the markets.
Just a little more than three weeks ago, all of the major indexes were setting record highs; only to see the market collapse in a stunningly short length of time. A strong rally of 4,000 points has taken place on the Dow from its low of about 18,500 on Monday to last night’s close of 22,552. This is a little more than a 20% gain from Monday’s low in just three trading sessions. This three-day period illustrates why staying the course is so important. To miss this gain only locks in the losses from the devastating market drop of the last three weeks. This, however, is not to say that volatility has come to an end and that the worst is over.
Congress and the President have stepped in to pass a massive $2 Trillion piece of legislation aimed at supporting small and medium-sized employers, with another bill expected to pass today with similar financial support. This legislation has been the primary driver of the three-day market rally. In the midst of the market turmoil and the emergency action on the part of government, yesterday the Labor Department reported first-time unemployment applications of nearly 3.3 million, double what was expected and a record number by multiples of the previous record. Next week’s number is expected to be about the same. This illustrates just how deeply the overall economy is being effected by the general shutdown of the country.
As of last night, the U.S. passed China and Italy as the most infected nation in the world with nearly 86,000 cases and more than 1,300 deaths. New York accounts for about half of the total U.S. cases and deaths. Of course, our hearts and prayers go out to the victims and their families. As these numbers mount, the market will likely be tested again. While it is almost impossible to predict if this week’s landmark legislation will be enough to stem the economic wreckage caused by the Coronavirus, it will certainly help mitigate some of the the short-term pain. Ultimately, economic and market recovery is dependent on how severe the virus becomes and how quickly the economy can recover post-virus. The strength of the economy going into the pandemic was at historic levels, which should help to speed the recovery.
Ultimately, the unfettered U.S. economy of the last few years produced record-setting growth throughout the country and especially in the stock market as it responded to this growth. We should see a resumption of that growth once the pandemic has passed. Of course, no one can predict the timing of when this will take place. This, however, is the advantage of the long-term investor. As a 401(k) participant you are, by definition, a long-term investor. It is important at this time to use that advantage to weather this storm.
Stay safe and well,