The Market is Signaling Recession. What Next?

The last three weeks have led to intense emotions.  Both inside and outside the market, anxiousness is high due to COVID-19.  While our health is the most important thing, other things are concerning us too: the status of our events, where and whether our kids will go to school tomorrow, travel plans that we were looking forward to, and, for many, our investment accounts.  Headlines on Thursday morning at 5 am ET are talking about not only the suspension of the NBA season and the European travel ban, but also how stocks have entered a “bear market”.  On all these points, I understand everyone’s concerns, and they are valid.

The fall in stock prices over the last several weeks has been and continues to make sense.  Because of the health issues that exist, it is unclear how exactly our economy will be affected.  This raises risk, which forces stock (and bond) prices to fall to compensate.  The more headlines report that economic activity will be affected, the more risk there appears to be in the system. 

As I have written before on this topic, the key is for the market to know more about the disease and what its effects will be both in the short (next few months) and intermediate (the recovery) term.  In the short term, we know individuals, businesses, and governments are taking steps to try to halt disease spread: canceling events, putting travel bans in place, closing schools, and enforcing mandatory work from home policies. These all are hurting and will continue to hurt the economy until people are comfortable with responses to the pandemic. But do all people feel the same way?  Last night was my mother’s birthday and we went to a robustly full restaurant for dinner. 

But as more extreme measures are taken to combat the virus, the worse it feels, the more people will panic and sell their stocks. But perhaps that gets us through it faster, as much as it will hurt our psyches and our wallets.  And make the recovery quicker in both our health and the markets. As always, I do not advocate selling at this time, as stocks should be long term investments in your portfolio.  There may be some tax management we can do in your portfolio, and those issues are being taken up on a case-by-case basis.  Personally, I put some money to work this week myself.  Please call us if you need to have a specific conversation about your situation.