Uncertainty Remains High
HEALTH AND HUMANITARIAN CRISIS: As of May 21th, 2020, the John Hopkins University COVID-19 dashboard showed 5,159,674 confirmed COVID-19 cases globally and 335,418 deaths. The hardest hit nation by far is the United States with 1,588,322 confirmed cases resulting in 95,276 deaths, and unfortunately, these numbers continue to climb. This global health crisis has been and will continue to be devastating both domestically and abroad.
ECONOMIC IMPACT: The global economic impact from COVID-19 has been staggering, and the speed with which the impact occurred has been stunning. On Friday, May 8th, 2020, the Bureau of Labor Statistics announced April 2020 employment fell by 21.5 million jobs, the biggest single monthly decline in history by far! Unemployment skyrocketed to 14.7% from about 4% two months prior. To add perspective, the largest previous U.S. job loss occurred in 1933 when 15 millions Americans lost their jobs OVER THE ENTIRE CALENDAR YEAR! During the Great Recession, 2.6 million American workers lost their jobs during calendar year 2008. COVID-19 will likely continue to weigh on the U.S. and foreign economies for months to come, albeit at a diminishing pace.
Mitigating the potential full negative economic effect of the COVID-19 shutdown has been the fiscal and monetary response from governments around the globe. In the U.S., M-1, the most liquid component of the money supply, has increased as much in the last eight weeks as it did in the entire year following the Lehman bankruptcy in the fall of 2008. Furthermore, the Federal Reserve Bank has, in our view, done a very good job of providing liquidity in the capital markets, especially after the early COVID-19 shutdown capital markets disruptions, some of which were severe.
HINGE EVENT: Like 911, the Great Depression, and the use of nuclear weapons to end World War II, COVID-19 is a hinge event that will forever reshape our world. Never again will our pantries be in short supply of essential foods with long shelf lives. Few households will get caught flat footed without ample personal hygiene and cosmetic products. The vast majority of households will forever more have an inventory of personal protective equipment. Investors and savers will closely monitor their cash reserve funds, and to the extent they can afford it, they’ll keep several months of household operating expenses on hand. This rainy-day-fund might even be renamed to the household world pandemic fund. Large employers and small business owners will constantly assess their preparedness for a sudden and sustained total business interruption. And the post-COVID-19 workplace environment will be forever changed. The latter will, as described below, potentially disrupt the commercial office market.
WHAT WE DON’T KNOW: The final magnitude of COVID-19 remains unknown. Suffice it to say, the heartbreaking human toll of this health crisis is far from done. When will a COVID-19 vaccine be ready, and how quickly will it become available to the masses around the globe? Will scientists discover antiviral remedies before a vaccine is developed? If so, when will it become available and how will it mitigate patients’ symptoms?
As we enter the early stages of reopening the U.S. economy, what health impact will occur during or after the re-opening? Will COVID-19 cases re-accelerate or will they hold steady? Will we see the feared second or even third wave? If so, will many governors slow their state’s phased re-opening or even reinstitute stay at home orders?
How will consumers react? Given the opportunity, will shoppers return to retail stores? Will diners return to restaurants? Even if they do, we can logically expect a gradual return to retail stores and restaurants versus a rapid return based on government and health organization mandated capacity restrictions. When will travelers feel comfortable flying or cruising again? When will conferences and conventions begin appearing on our calendars? Because of these unknowns, we expect continued market volatility and choppy trading in the equity and bond markets.
WHAT’S NEXT: Over the next few quarters, we will begin to answer many of the questions above. Hopefully, some uncertainty will be removed. Once the uncertainty begins to decrease, we also expect volatility to decline. That doesn’t necessarily mean the markets will appreciate. It just means that wild swings in the markets, both up and down, should subside. The stock markets do a better job of absorbing bad news, especially if it’s widely anticipated, as long as uncertainty is low.
At PNW Asset Management, we are presently reviewing accounts for rebalancing opportunities. As we progress through our assessment, you might see some subtle changes in your portfolios. Any changes we make will be consistent with your household’s financial plan or goals and objectives. We will not make any broad based changes to your portfolio without first consulting you.
It is our great honor to serve as advisors to our clients, and please know that we are privileged to have the role. We’re here for our clients, and would love to have the chance to start a dialogue with you. So please contact us at any time.