Your Financial Health | Navigating the Recovery Road Map
Ever since the first confirmed case of Coronavirus in the U.S. on January 20th, the number of cases has grown exponentially. While the virus is indeed similar to other viruses in its genetic makeup –We know that what sets this one apart from others is how fast it has stealthily spread.
We believe it is important to understand the underlying circumstances affecting the Markets—and how we are working through them, especially during these times of uncertainty, where the latest headlines could be contributing to our economic outlook.
Therefore, let’s recap a few facts about the Coronavirus and then we will look at the economic perspective.
As it relates to its degree of infectiousness, measures show it is similar to SARS, and more infectious than the Seasonal Flu. Therefore, we have seen drastic measures taken to prevent the spreading of this highly contagious virus—the only thing we can do, considering testing is limited and a preventative vaccine does not currently exist.
Bringing us to where we are today—practicing social distancing, in order to do our part in “flattening the curve.” A guideline which President Trump recently announced would be extended until at least April 30th.
The term, “flattening the curve,” does not necessarily mean that the number of total cases is expected to be less – However, the rate at which these cases are arriving at a hospital, and therefore reported, are expected to slow down. In doing so, the expectation is that the burden on our health care infrastructure would be alleviated. Ideally this would drastically improve the recovery rate.
Without social distancing, many hospitals simply do not have the capacity to treat the number of patients who would be arriving for care.
It is believed that drastic measures taken by China, such as these, led to flattening their curve.
The question, however, is – How long will this last? How long will schools, theme parks, restaurants, bars, retail stores and other non-essential businesses remain closed? Not to mention the widespread cancellation of large events. The answer is: we don’t know.
“We believe it is important to understand the underlying circumstances affecting the Markets—and how we are working through them, especially during these times of uncertainty, where the latest headlines could be contributing to our economic outlook.”
Cue the economic slowdowns, signaled by a reduction in pay or job elimination.
Households and businesses alike are already seeing major cash flow concerns, which could warn that the economy is tilting into an unwanted direction.
Collectively, these series of events have created an outlook that is flooding the Market with uncertainty and fear.
Two key themes which would serves as positive indicators for market:
- A public health measure to slow the virus outbreak
- And policy response, including coordinated monetary and fiscal policy-easing to prevent lasting economic damage
The first indicator has already been addressed by way of Social Distancing Guidelines.
The second one begins with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was passed by the House of Representatives and signed by the president on Friday March 27th. This comes as a subsequent action to the Federal Reserve cutting rates to near zero, plus global banks delivering coordinated responses.
Notice that the response to the virus seems to mirror that of a large-scale natural disaster. Historically, a natural disaster is typically a temporary disruption in activity, and the outcome is a sharp recovery.
Number of Confirmed Coronavirus Cases, by Days Since 100th Case
Exact values for individual countries can be viewed on the interactive chart from Vox from an article by Dylan Matthews, 11 Charts That Explain The Coronavirus Pandemic – (Please note that details about the coronavirus pandemic are changing rapidly — visit the Vox coronavirus hub to read up-to-date coverage.)
As we have mentioned in a previous email, at the first sense of uncertainty, investors sold out of their equity positions, rushing towards bonds for safety. While U.S. treasuries would typically be the buffers against stock selloffs, there is a risk of yield-snapback lingering, due to the sharp drop in treasury yields.
It’s likely that the market volatility, paired with an economic slowdown, could be sparking memories of 2008— however; this is not the time to blindly run towards “safety”. There is opportunity amid this chaos.
This is the time to re-balance portfolios into the equity decline – this is also a time to implement tax loss harvesting strategies. If you have ever considered converting your IRA into a Roth IRA, this is also a good time to do so. The benefit of completing a Roth conversion at the downturn market is that the taxable amount is based on the value of the account at time of conversion.
This is not like 2008—the underlying circumstances affecting the Markets are being contained by the public health measure put in place to flatten the curve, along with the robust policy response.
Furthermore, you may also notice that the American spirit seems to be encouraged by the free market policies which have underwritten three years of economic boom, putting companies on a better footing to confront times such as these.
The circumstances have also applied pressure on many industries to adjust their infrastructure in order to continue their operations, while also practicing social distancing. We have seen that many companies have quickly transitioned to a remote work environment. In the industries where working remotely is impossible, we have seen many employers provide extended paid time off, so employees can be home with their families.
While it seems that the bustling activity of our day-to-day lives has suddenly been silenced, stripping our lives down to the essentials, our resiliency as a country will fuel a healthy recovery. Once the outbreak has passed, the rebound will likely quickly occur in sectors such as tourism, film and television, entertainment, catering and retail.
We expect to see a surge in technology as the circumstances of this epidemic has already pushed various industries to leverage new platforms and technologies that could result in long-term cost reduction and increased efficiencies.
We will continue to monitor the developments of the virus and how it affects our financial outlook on the economy and the markets. We will also be reviewing the CARES Act and following up with a summary of key provisions for you.
Life doesn’t come with a road map. That lesson has certainly been underscored by this global pandemic. Everyday life has changed for all of us, and change can be unsettling. We continue to be available, especially during these times.
Thank you to the brave healthcare workers, the dedicated teachers, the grocery store workers, the pharmacists, the sanitation workers, the caregivers, the delivery employees, and so many more, who continue to show up for work. We appreciate you.