Dear Friends and Valued Clients,
“Never confuse a single defeat with a final defeat.” – F. Scott Fitzgerald
The economic struggles in our country are among the worst we’ve ever seen. In April, a record 20 million people lost their jobs, and 36 million people have now filed for unemployment since mid-March. Record drops in consumer confidence, manufacturing, and spending are all adding to the immediate economic fallout. Specific industries have been devastated, with names like J.C. Penney, J. Crew, and Neiman Marcus filing for bankruptcy.
Clothing sales are down 89%, furniture sales down 66%, and restaurants sales are down 49% from this time last year, according to the United States Census Bureau. Yet, as F. Scott Fitzgerald wrote, these separate single defeats won’t necessarily add up to the final defeat. Our great country has survived many trying times before, and we are starting to see glimmers of hope on both the medical and economic fronts. Our resolve and fortitude will once again shine, as we head toward better times in the second half of 2020.
More testing for COVID-19 is needed to help identify infected people and to stop the virus from spreading. As testing has soared, the number of positive cases as a percentage of total tests has trended lower, and that percentage has consistently been below 10% according to data from the COVID Tracking Project. In addition, doctors have developed a “toolbox” of drugs to help provide patients a better chance of survival. Antiviral drugs like remdesivir in combination with other drugs are showing significantly better results now than just a few weeks ago. Other health organizations have reported “potentially positive data” in several treatments. Although a vaccine could still be a ways away, human drug trials are underway with encouraging initial results.
In the face of the devastating loss of human life and historically weak economic data, however, the S&P 500 Index has experienced one of its greatest short-term rallies ever, up more than 30% from the March 23 lows at its recent peak. Based on historical trends, a correction in stocks over the coming months may be possible. Stock valuations are historically expensive, tensions are building between the U.S. and China, the stock market’s momentum is showing signs of waning, and we’re entering the historically weak summer months – all of these are reasons to be alert.
History bears this out. All major S&P 500 bear markets in the past 60 years had a significant bounce off of the market lows, followed by a correction of about 10% on average before another surge higher. Based on this historical trend, a market correction of 8-12% after the recent big rally may be in store over the coming months.
While current economic data may sound bad, it is important to remember it is backward looking. Real time economic data points, such as public transportation, traveler data from the TSA, fuel sales, railroad traffic, and federal tax withholding are all showing improvement as the economy begins to reopen.
Finally, small businesses are the lifeblood of the U.S. economy, and the Bureau of Labor Statistics shows they employ 47% of all private sector jobs. Recent data showed small businesses are as optimistic about the next six months as they’ve been in 18 months, suggesting the worst may be behind us, and a growing demand for their products and services could be brewing. The pain from this crisis is impacting all of us, but better times are ahead.
Please take care of yourself, trust your plan and as always, we encourage you to contact us with any questions.
Thank you for reading,
Benchmark Wealth Management