Market Update – May 2, 2020

As some states are beginning to ease restrictions on businesses, there is a hope that we’ve seen the worst of the coronavirus outbreak and that we can return to some semblance of normalcy as a nation. While the reopening will continue to be guided by improving health data, economic data continues to be troubling.

First quarter U.S. GDP fell at an annualized rate of 4.8%, the worst number since the end of 2008. In March, consumer spending fell 7.5% and personal income dropped 2% as the effects of the shutdown and reduced wages cascades through the economy. New first-time claims for unemployment benefits were 3.8 million this week, bringing the shutdown total to more than 30 million. States have been severely challenged to keep up with the flood of requests they’ve received, so it will still take several more weeks to get an accurate count of job losses. We expect the national unemployment rate will likely peak somewhere between 15-20%.

There were some positive developments evident in the start of the reopening: Hotel occupancy rates, the number of TSA security screenings, and gasoline shipments all rose from last week. For consumers who are in position to take advantage, there continue to be attractive deals available for mortgage refinancing and automobile purchases.

For the week, stock markets fell slightly: Both the S&P 500 Index and the Dow Jones Industrial Average declined 0.2%. In April, both indices recovered to post their best monthly performance since January 1987. Year-to-date through April, the S&P lost 9.8% while the Dow dropped 14.7%.

In part due to the enormous amount of monetary and fiscal relief already pledged by the federal government, markets seem to be looking beyond all of this negative data and towards recovery in the second half of the year. This continues to be our expectation as well. However, our continual analytical review helps us adapt to potential land mines that could threaten that outcome. What are those potential land mines? A deterioration in key metrics – a potential second major outbreak of the coronavirus, a smaller than expected snapback in consumer demand, and rising political and economic tensions between the U.S. and China – could lead us to adjust our positioning. Conversely, a COVID-19 vaccine breakthrough and stronger consumer demand are positive developments that would convince us that the pace of recovery will quicken.

As we continue to navigate these challenging times, our commitment remains to be here for you each step of the way. Please contact us with any questions about the economy your financial plan and your portfolio.