Market Update – May 9, 2020

With more than half of states now in some phase of reopening, the next stage of the recovery is taking shape. Even though unprecedented unemployment numbers continue to underscore the severe economic effects of the shutdown, a measured sense of optimism that we may be past the worst is starting to take hold.

The April unemployment report released Friday confirmed the overwhelming impact of the shutdown on the U.S. labor market. Even though widely expected, the scope of the job losses is staggering. More than 20 million workers dropped from payrolls in April; the next highest on record is 1.96 million in September 1945. This resulted in an unemployment rate of 14.7% for April, the highest since the Great Depression.

As always, markets are looking ahead. As stocks rise, investors continue to indicate their belief that a recovery will begin in the second half of 2020. For the week, the S&P 500 Index was up 3.5% and the Dow Jones Industrial Average advanced 2.6%. Year-to-date, the S&P has lost 9.3% while the Dow has fallen 14.7%. The NASDAQ index, with its higher concentration of technology companies, has recovered more sharply than the broader stock market; its YTD gain totals 1.7%. While this relative outperformance does not mean that we should move aggressively into large U.S. technology stocks, we do have a meaningful allocation of tech companies in our diversified portfolios.

With trillions of dollars spent by the federal government, and the Federal Reserve indicating that short-term rates will stay near zero for the foreseeable future, we continue to examine the prospects for inflation. (High inflation is a significant threat to not just the value of cash savings and bond returns, but can also impair stock returns if allowed to grow unchecked.) However, in the short term, we do not believe high inflation is likely. Government stimulus money is currently helping citizens simply meet basic living expenses and businesses meet payroll. Additionally, oil prices are likely to remain relatively low as supply continues to exceed demand. Even after we return to a new state of normal, there will likely be some hesitancy by consumers to rush out and make large-scale discretionary purchases. All of this should keep inflation in check in the near term.

If the economy grows quicker than expected in 2021 and consumer demand roars back, inflation could become more of a threat. As always, we analyze current conditions and adapt our portfolios as warranted.

While it is sometimes easy to focus on stock investments, a range of financial topics warrant attention at the moment. Investing in real estate properties, refinancing and selling residences, business planning and continuity – these are all just some of the issues that we recently reviewed with industry professionals as part of our ongoing webinar series, Leading Through Crisis. The webinar is available on Planning Alternatives’ YouTube page. Experienced professionals interviewed include:

  • Chris Pero of Max Broock Realtors
  • Marcy Hahn with Lotus Legal Solutions
  • Justin Erickson, CEO with Harbor Foods Group
  • Scott Ward, VP Sales, Hostess Brands

We invite you to watch and hope you’ll view future webinars.

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.