Covid-19 Market Update

Covid-19 Perspective and Encouragement

We wanted to take some time and review some important market updates amidst this Covid-19 virus.

We are also working on a webinar that will allow for a more interactive process where you’ll be able to ask questions and get answers in real-time.  We will have more on that to come so check your email or the First Financial Consulting website for the official announcement. In the meantime, you can always check out all of our latest CoronaVirus updates, and economic and market commentaries. Visit our personal finance blog to view our full list of articles.

Where Are We Now Amidst Covid-19?

So, where are we now?  Some people would say that we are at the “normal” end of the longest bull market in history.  When people say that we are at the “normal” end to the bull market what they really mean is that this market pullback was needed. The Covid-19 outbreak was the inevitable trigger.  We have to respectfully disagree with this claim. You see, recoveries can be measured in time or by growth and valuation measurements. Is this the longest-running recovery we have had? Yes, in time. But that’s because the early years of it showed such anemic growth and we didn’t make up the activity that we would normally make up in recoveries. So in other words, it was longer in months but we should not say that we had gone too far.

In December of 2019, before the Covid-19 panic took hold, balance sheets and corp profits were strong, and the prospects were excellent for continued growth.  This was not an overvalued market, meaning stocks were not overvalued or overpriced.  If anything, we believe they were fairly valued or undervalued.

So what we are seeing is an underlining economy that still remains strong.  The steps being taken to medically combat CoronaVirus are now at the lever where future profits are being displaced… pushed into the future.  We are confident that we will still see recovery in late 2020, early 2021.  But before getting into those details, let me jump right into what you should do as an investor.  The short answer is to stay the course.  If you have been listening to our other Covid-19 market updates, you should know that we have been saying that for a while now.  We’ve put together two new charts to illustrate our point.

Market Recession During 2008-2009

The first chart takes us back to the 2008-2009 market recession.  We’ve built this chart to include four actions a person could take during the recession.  The four options we’ve included are common actions any investor would make.

What Would Happen If You Had… 

1. Stayed invested in stocks
2. Gotten out of stocks and waited 1 month to re-enter
3. Gotten out and waited 3 months to re-enter
4. Gotten out and waited 6 months to re-enter

Given the results from this chart, it demonstrates that the market recovery tends to happen so quickly that if you delay in re-investing back into the market, you greatly risk missing the market recovery.  As the chart shows, if you had stayed invested throughout the recession, you would have actually earned the most. If you had sold and waited 1 month to re-invest, you would have lost 23%. If you had sold and waited 3 months to re-invest, you would have lost an additional 9% on top of that 23%. The same goes for investors who waited 6 months to re-invest. They would also lose an additional 9% for a total cost of 47%. In this scenario, selling out of the market guarantees that you lock in a permanent market loss.

Market Recovery Over a 10 Year Period

The second chart simply extends the first chart through the decade following the 2008-2009 recession. Again, the underlying principle remains. The investor who stayed invested throughout the recession earned the most. In fact, staying invested with $10K would have grown to roughly $42K if you stayed invested. If you waited 6 months to re-enter the market, that same $10K would have only grown to about $28K. This is a tremendous loss of profits that you can never get back.

Covid-19 vs. Other Outbreaks

Studies of other viral outbreaks demonstrate that this type of recovery is not unique. The graph below illustrates all of the major global viral outbreaks from 2003 to today.

• SARS in 2003
• The Avian Flu pandemic in 2006
• Swine Flu in 2009
• MERS CoronaVirus in 2013
• Ebola in 2014
• Zika in 2016

In each one of these outbreaks, there was fear, concerns, and a bit of a market hiccup. However, after each viral outbreak, there was a market recovery and none of these events are remembered today economically.

Let’s talk a bit about the economic profits I mentioned earlier. Remember that stock prices are simply an evaluation of future profits. The market evaluates and will price future profits accordingly. In the case of this Covid-19 outbreak, our actions to stay healthy are going to delay economic activity. People are spending less, eating out less, vacationing less, flying less. The list goes on. In the short-term, there is going to be a bit of an economical hit. However, we do know that it will recover. People will go back to their normal lives, company profits will increase, and the market will have recovered.

Government Response to Covid-19

The government’s actions give us further confidence in market recovery.  The danger here would have been a liquidity shortage. If businesses and banks did not have enough money to get through a tough time, we might potentially have a bigger problem. However, the Feds made sure that this would not happen:

• First, the Fed cut the Fed Funds rate to a range of 0.00% – 0.25% (the rate one bank borrows from another).
• Second, the Fed cut the discount rate to 0.25% (the rate banks pay to the Fed).
• Third, the Fed will inject an additional $700 billion into the system.
• Fourth, the Fed signaled that it will work with banks on capital requirement regulations
• Fifth, the Fed acted with other central banks to make sure there’s ample liquidity
• Sixth, the Fed said it will consider additional steps as necessary

We are confident in the government’s ability to handle the situation at hand.

We’re Here to Help

Through all of this, we at First Financial Consulting want you to know that we are here for you. We are working diligently to provide you with support and answer any questions that you may have. This is not the first time that we have navigated our clients through a market recession, and we do not believe this time around will be much different.

Our advisors are manning their phones and we are closely monitoring our emails. Don’t hesitate to ask us questions, we’re here to help.

What You Can Do to Remain Safe

The CDC and WHO have been doing an excellent job updating the general public on ways to remain healthy. Here are 5 basic steps to help you remain healthy:

1. Hands Wash them often
2. Elbow Cough into it
3. Face Don’t touch it
4. Feet Stay more than 3ft apart
5. Feel sick? Stay home

We also want to endure that you do not fall prey to malicious websites or scammers. There have been reports of malicious websites and scammers who pose as government health representatives in the news lately. Since we don’t want you to fall prey to these scams, we’re including some of the known scams below to help you stay safe:

1. Numerous malicious websites have already been reported. Sites that claim to provide information or maps of Covid-19 spread in return for your personal information should never be trusted. Here’s a few of the know malicious sites: coronavirusstatus[.]com, coronavirus-map[.]com, blogcoronacl.canalcero[.]digital, coronavirus[.]zone, coronavirus-realtime[.]com.
2. There have also been numerous phone apps that claim they will let you track Covid-19 cases. These apps contain malware, specifically designed to infect your phone. Here’s an example: coronavirusapp[.]site
3. There have been scammers who either call or email their victims pretending to be government health workers.
4. Numerous sites claiming to sell Covid-19 test kits or treatments for the virus have been reported.

It’s crucial to protect yourself from malicious malware and scams. In general, you should never give your information out to anyone claiming to be a government official. Always use a degree of common sense when browsing the web for Covid-19 updates. If a site looks fishy, don’t click on it. There are plenty of reputable sources out there with the information you need. Our advice? Get updates and information from places you already trust. Lastly, if a company claims to have a cure or test kit for Coronavirus, it’s probably too good to be true.

In closing, we want to remind people that the markets will recover. It’s important to stay invested. Selling out of the market and trying to re-invest later is a sure way to lock in permanent losses. Stay the course and let the markets recover, just as they have done with past outbreaks. Again, if you have any questions about the times at hand, please, do not hesitate to give us a call.