Markets, Economy

Weekly Kickstart (03/30/2020-04/03/2020)

3/30/20 8:00 AM

iStock-626627280.jpgThe stock market stabilized last week, as the S&P 500 rose by 10.26 percent to 2,541.47. That left the benchmark index down 21.34 percent 2020-to-date, and 24.95 percent below the record close hit just one month ago. In the prior Kickstart we noted that policymakers appeared to be finally recognizing just how significant the economic hit from the coronavirus could be, and that their monetary and fiscal responses would therefore be sized appropriately. This positive development continued last week and was one of the main factors buoying equities during the past few trading sessions. It all started on Monday when the Federal Reserve announced another barrage of aggressive measures to provide liquidity and support the flow of credit in America. Such actions include ramping up quantitative easing and reinstating programs used during the financial crisis, as well as creating new initiatives, such as a “Main Street Business Lending Program” for small-and medium-sized firms.


On the fiscal front, Congress later in the week approved a coronavirus relief package equal to roughly 10 percent of U.S. gross domestic product (GDP). Many of these policies will not only directly support households, businesses, and local governments hit the hardest by the efforts to limit the spread of the coronavirus, but also provide a financial incentive for Americans to adhere to social distancing, shelter-at-home orders, and other government-forced actions meant to combat the contagion. Put simply, the steps taken by the Fed this month are intended to help the markets (equities, credit, etc.) continue to function during the COVID-19 crisis, and the actions of Congress will ensure that Americans remain financially capable of participating in these markets. Although it is encouraging to see an unprecedented halt to economic activity being met with unprecedented monetary and fiscal support, two obvious questions are whether even more policy actions will be needed, and if all of these initiatives will be enough to prevent a brief recession from turning into a depression. The answers to both questions will ultimately depend on how quickly the spread of the coronavirus can be brought under control, and in turn how long the disruptive containment efforts are left in place. One thing that does appear certain, though, is that market volatility may not be going away any time soon. For example, incoming economic reports are likely to remain terrible until at least a month after the lockdown protocols are lifted, and even if the spread of the coronavirus starts to taper off the daily COVID-19 infection statistics could still appear to worsen as a side effect of incubation delays and increased testing capabilities. Any investors unsure how to navigate this environment may want to consult with a professional financial advisor and make sure their positioning is properly aligned with their risk tolerance, retirement goals, and other unique variables. As always, we are here to help with any questions you may have.


To recap a few of the things we learned about the economy last week, the positives included that the nation’s trade deficit (in goods) narrowed, home values rose, wage growth firmed, inflation pressures remained muted, and demand for U.S.-manufactured durable goods exceeded forecasts. As for the negatives, mortgage applications fell, new home sales pulled back, a key measure of capital investment declined by more than anticipated, gauges of regional business activity continued to send mixed signals, consumer confidence deteriorated, and the number of Americans making first-time claims for unemployment benefits surged to the highest reading on record. This week the pace of economic data picks up with several important reports on housing, factory output, service sector activity, and employment scheduled to be released. That includes the potentially market-moving March job report from the Labor Department due out this Friday that should shed more light on the immediate damage of the coronavirus and related containment efforts.


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Sources: Econoday, FRBG, Wells Fargo, FRBSL

Post author: Charles Couch