Unprecedented is a word that gets used a lot lately, and rightly so. Because we are living in a time that none of us have experienced. It seems like we are living in a strange movie or TV show where someone gets in their car, drives to their favorite places, but everyone is gone. The only thing missing is Rod Serling stepping out and saying “Welcome to the Twilight Zone”. It seems that weird.
But this is where we are as we try to mitigate the spread of this virus and keep it from overwhelming our healthcare system. It has been hard to fully grasp the ripple effects that these new virus containment policies are having on the economy. The rolling implementations of “shelter at home” mandates currently have about 75% of our population living in a “stay at home” mode. We are a service oriented economy and a huge portion of our service businesses have been closed by government orders. This has created a record 6.6 million of our neighbors filing for unemployment last week.
In addition to the coronavirus effects on our economy, Russia and Saudi Arabia decided to have a price war in the oil market and keep producing more oil than the world needs. At the same time, demand in the U.S. for fuel has dropped approximately significantly in the last few weeks. So America’s energy industry, whose growth over the recent years has also been a big plus to our manufacturing industry, is trying to stay solvent in this incredible squeeze from both ends of their business.
The number of great businesses that our country’s entrepreneurs have built, many of which are now trying to figure how to stay afloat with revenues dropping from 80% to 100%, is the challenge that Congress and the Federal Reserve is trying to address. This uncertainty is weighing on all of us, and is certainly reflected in the behavior of the financial markets.
We just experienced the fastest drop of 30% plus in the stock market’s history. Equally fast and volatile has been the incredible drop in the interest rates of government bonds. And this is understandable, as we know our economy will take a big hit for the next several months. And this sudden stop of economic activity will create a drop in earnings during this quarter and next quarter for the vast majority of companies that we own.
The big questions that we are all asking are “How long will this last? Will the new programs from Washington be able to keep many great private, as well as public companies, solvent? How much of this economic weakness is already reflected in the current much lower stock prices? After this crisis ends, will many of our friends and neighbors who have lost their job, or seen a substantial reduction in their income, be able to go back to a pre-crisis lifestyle?”
Unfortunately, only time will tell us the answers to these important questions.
But there are some things that we do know. We know that these unprecedented times will not last forever. That there is a laser like worldwide focus on defeating this virus. That some, perhaps a lot, of the expected swoon in economic activity is already reflected in current lower stock prices. That selling when others are panicking is not a good long term strategy. That when push comes to shove, we are all Americans first, and we do pull together at times like this.
What I am concerned about is how the medium and small sized businesses will come out when this is over. They are the backbone of our country’s economy and they have to be in business for our economy to bounce back. I do believe our government knows this and I hope they will do what it takes to keep this virus from destroying our country’s most valuable people and businesses.
On a separate note, THANK YOU to the healthcare providers, first responders and others who are risking their health to help all of us.
As always, please do not hesitate to contact us with any questions or thoughts during this difficult time. I hope you and your family are safe and somewhat sane during this time.
Thank you as always for your trust and confidence in us.
Disclosure: Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Past performance may not be indicative of future results. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investors should consult their investment professional prior to making an investment decision. Expressions of opinion are as of this date and are subject to change without notice. If you wish to stop receiving these emails, please reply “unsubscribe.” Raymond James & Associates, Inc. member NYSE/SIPC.