Stocks pulled back last week, as the S&P 500 fell by 2.08 percent to 2,488.65. That left the benchmark index down 22.97 percent 2020-to-date, but 11.23 percent above the March low (closing basis). Many investors are naturally wondering whether this recent bounce has room to run or if it simply a temporary reprieve. For some a re-test (at the very least) of last month’s extreme levels seems inevitable, and such sentiment is understandable given the high degree of uncertainty still surrounding the coronavirus and its ultimate blow to the economy, as well as the existing historical precedent for more prolonged bear markets with numerous false bottoms. At the same time, though, there have been a handful of recent “green shoots” that many traders may not be fully discounting, e.g. a sharp rebound in oil prices, so far tame market reactions to terrible economic data, continued progress towards a vaccine, a more defined road map for reopening the economy, an unprecedented monetary and fiscal response out of Washington, and perhaps most importantly a “whatever it takes” mentality becoming more popular among policymakers.
Although encouraging, such developments still only suggest that tail risk for the stock market remains at best two-sided, and that elevated volatility is therefore likely not going away any time soon. For many experienced 401(k) participants this may not be too troubling because they recognize just how powerful a combination of routine contributions and the long-term resiliency of the market can be. Updated EBRI data, for instance, showed that just since the end of 2016, a period that has endured both the December 2018 market shock and the current COVID-19 tumult, the average 401(k) account balance for younger (25-34), less-tenured (1-4 years) workers has still jumped by 145 percent, while the S&P 500 has gained only 15 percent (through the end of March 2020). Older workers (55-64) with at least five years of tenure saw their 401(k) balances rise by a smaller but still impressive average of 43 percent during this same period since these individuals tend to have much larger accounts that are less sensitive to both contributions and stock fluctuations. Altogether, these significant gains should provide more evidence of how consistent participation in a tax-advantaged 401(k) plan can help Americans continue to prepare for retirement even during periods of heightened volatility. Additional assistance is available by regularly consulting with a professional financial advisor and 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 narrowed, pending home sales rose, real estate values climbed, and average hourly earnings improved (albeit due mainly to COVID-19 distortions). As for the negatives, home-purchase applications declined, consumer confidence deteriorated, construction spending decreased, gauges of manufacturing and service sector activity collapsed, corporate layoffs announcements surged, small business job creation plunged, nonfarm payrolls contracted for the first time since 2010, the national rate of joblessness jumped, and the number of Americans making first-time claims for unemployment benefits more than doubled. This holiday-shortened week the pace of economic data slows down but there are still a few important reports on consumers, employment, and inflation scheduled to be released.
What To Watch:
- Nothing Scheduled
- MBA Mortgage Applications 7:00 AM ET
- EIA Petroleum Status Report 10:30 AM ET
- 10-Yr Note Auction 1:00 PM ET
- FOMC Minutes 2:00 PM ET
- Jobless Claims 8:30 AM ET
- PPI-FD 8:30 AM ET
- Consumer Sentiment 10:00 AM ET
- Wholesale Trade 10:00 AM ET
- EIA Natural Gas Report 10:30 AM ET
- 30-Yr Bond Auction 1:00 PM ET
- Fed Balance Sheet 4:30 PM ET
- SIFMA Rec. Early Close 2:00 ET
Sources: Econoday, EBRI, FRBSL
Post author: Charles Couch