UNCERTAINTY AND MARKET VOLATILITY
The first six months of 2020 will go down as one of the most life changing and unforgettable years in our history. Who would have guessed…?
At the end of 2019, the S&P 500 delivered one of the best stock market rates of return (31.3%) in the past 50 years. It was the dawn of a new decade.
We entered 2020 with tremendous positive momentum and in Feb 2020 we had achieved 128 consecutive months of growth in the economy and a record low 3.5% unemployment rate.
The Stock Market was up almost 10% by the end of February.
Then with a thud, the COVID-19 pandemic was upon us in March 2020. The Stock market plummeted by 30%, unemployment skyrocketed with over 22 million jobs lost in March and April 2020, respectively. Unemployment rates rising sharply to 14.7% by the end of April and down slightly to 13.3% by the end of May 2020. The stock market has crawled its way forward and back up by the end of May. See graph below for the trends.
As of June 8, 2020, the US economy was officially in a recession. With civil unrest, uncertainty about the economy, unemployment, social distancing, Government Stimulus and Covid-19 still an immense unknown, what should you do with your investments in your 401-K?
The anxiety that surrounds our country now is justifiable. For many, the thought might be to panic and sell or move it all to cash, bonds or fixed income investments.
We have hope though. People are resilient, people bounce back through adversity. We learn and adapt. If history has taught us one thing, it is we need to be patient and ride this storm out.
The following graph below demonstrates what happens when we are patient.
· The Great Recession started in Oct 2007 through March 2009 and the market dropped 56% in 18 months. It fully recovered in 4 years. The cumulative gain in 5 years was 174% This was the greatest crisis this country had seen for current generations.
· The Tech Bubble of 2000 to 2002 (2.5 years) incurred a market drop of 48% and fully recovered in 5 years. Add in September 11, 2001 and our country was in crisis.
· The great stock selloff in Nov and Dec 2018, respectively, which had the effect of a 20% market drop recovered quickly with a 4-month recovery in the record year of 2019.
The year 2020 is as tumultuous and unstable as any time in history and once again we are in a crisis. It is a roller coaster and the only people that get hurt on a roller coaster are those that jump off. The message here is to hold firm and stay the course. Be patient, be kind and be respectful to one another.