Volatility returned to markets this week, as stocks vacillated between gains and losses. Positive momentum from the past two months’ rally carried markets early in the week, only to see concerns about future economic growth and a second wave of coronavirus infections drive stocks down sharply on Thursday. While stocks recovered on Friday, we expect this heightened volatility to continue throughout the recovery process.
For the week, the S&P 500 Index fell 4.8% while the Dow Jones Industrial Average lost 5.6%. Since March lows, the S&P is up 38.7% while the Dow has gained 40.6%. Stocks certainly were not expected to continue their meteoric rise from the bottoms forever – especially with so much uncertainty still regarding both the effectiveness of virus containment and the economic recovery. As is often the case after markets quickly move sharply upward, it’s likely that stock prices will continue in this up-and-down “consolidation” phase until we gain additional clarity on whether a meaningful second wave is happening and whether the initial promising data from the reopening persists.
Unemployment claims continued to decline. Initial claims were1.5 million, down from 1.9 million the week prior. Continuing unemployment claims also fell to 20.9 million, from 21.3 million. During their meeting this week, the Federal Reserve signaled that their monetary stimulus and asset purchases will continue as long as necessary for the economy to recover and that they would likely keep near-zero short-term interest rates in place through 2022. These statements were received by markets as indications that the Fed is not yet convinced of a rapid economic recovery from the pandemic shutdown.
To the surprise of no one, the U.S. Government’s Bureau of Economic Research officially stated this week that we entered a recession in February. However, the hope remains that while this recession will be the deepest in modern memory, monetary and fiscal actions will help make it one of the shortest. Congressional leaders and Treasury Secretary Mnuchin have both stated that additional fiscal relief will be necessary for industries and individuals. Including this Thursday, the S&P 500 has experienced 36 daily moves of 3% or more so far this year. In the previous five years combined, there were only 11 such instances. During this period of expanded volatility, we continue to stay true to our core investing disciplines of asset allocation and global diversification, while analyzing economic and market trends to enhance portfolios for the future.
As we continue to navigate through the pandemic, our commitment remains to be here for you each step of the way. As always, please contact us with any questions about the economy and your financial plan.