Despite lower levels on most of the market indices, the daily volatility of the market seems to have abated slightly this week from the previous three-week period.
While the Dow hit a low of 18,500 and recently peaked at 22,500, this week it has hovered around the 21,000 level. After the recent sharp drops, perhaps this level is about right given the disruptions in the economy due primarily to the Coronavirus national shutdown. The other major economic factor is the oil market. Saudi Arabia and Russia have been battling each other over production levels, dropping the price of oil to well under $20 per barrel at its low and currently trading at about $24 per barrel; more than a 40% drop. By itself, this would put downward pressure on the stock market, but combined with the national shutdown it really is a “one-two punch” to the markets.
In the last three weeks, 10 million people filed initial claims for unemployment coverage, and this is exponentially higher than any other previous record high. The relief bills quickly introduced by the Trump Administration, and the relatively quick passage by Congress, are a key element in the market seemingly stabilizing around current levels. Today, the application process begins for businesses – especially small businesses – to apply for “forgivable” loans. The key provision of the Small Business Administration (SBA) loan program is retaining employees. At this point, the market is essentially waiting to see two things: first, the effectiveness of the SBA loan program and how quickly banks can deliver the money to hurting businesses throughout the country; the Bank of America loan portal is already up and running to accept applications. Secondly, and perhaps most importantly, is the timing of the curve of infections and deaths from the virus flattening. Ultimately, if a vaccine is developed in the next few months, a robust recovery of both the economy and the markets could take place.
What should you do with your 401(k) account at this point? As difficult as it may be, the best course is to remain invested and continue to weather the storm. If you can, continue to contribute to your account at these lower levels or even increase your deferral rate. Today’s lower prices will bolster your account’s recovery when the market finally turns the corner. The historical pattern, after a sharp drop, is about a 7% recovery within a period of a few months.
Please see our updates regarding special provisions of the recent legislation that makes it easier to access your 401(k) account for needed emergency funds. Lastly, we are here for you during this stressful time. Our customer service associates are ready to answer questions and help guide you. Our entire operation is fully functional and working with 100% capacity in this remote work environment. We hope you and your family are safe and well.