These are challenging times as various worries manifest in each of us across hours and days.
Being cooped up at home, often with people we aren’t generally around 24/7, can add to the worry and anxiety. But we know through our faith, beliefs, experiences, and values that we will prevail.
“Optimism” is one of the best eight-letter words we know.
“Patience” is another.
The United States economy is a massive conglomeration of people, businesses, services, and goods. It is driven by the consumer. That is you and me.
In a nutshell, we spend money and once the COVID-19 pandemic passes, we will come out of our health-driven hibernation and spring back to many of our prior patterns of behavior, perhaps with more self-awareness about things like hand washing and self-quarantining.
When it comes to the economy right now, many of us feel like a cushion on the couch, under the weight of a 200-pound person. But once that weight is lifted, the cushion springs back. Our country’s currently compressed economic coil will likely do the same. I’m never one to bet against the resilience of the USA.
The stock market fell during the month of March at a pace never seen before. We went from a 10-year bull market to a fast one-month bear market with a 30% decline. For our stock market, it was the fastest drop into a bear market ever. The average time frame is eight months.
The odds are overwhelmingly positive that the stock market will bounce back in the future.
Will the economic recovery be a V shape (as in a fast down and then fast up) or a U shape with more time grinding around the bottom (or trough in economic terms)? I’ll bet you we know for sure in a year if we enjoyed a consonant or muddle through the vowel shape. I have a feeling that no matter which letter comes true, our wheel of fortune will turn around.
The true million-dollar question is, “When our economic hibernation ends, will the bear market go away and become a new bull market charging higher?”
Keep in mind that markets rarely move in a straight line higher or lower. We are due for rebounds and as more and more corporations are able to provide better earnings estimates (just about the biggest factor driving markets), we stand to see better returns in stocks.
Interest rates will likely remain at all-time lows for savers in bank accounts, for loans, and for bonds. So, I’d anticipate a renewed interest in dividend-paying stocks but look carefully as the current carnage may impede some dividend payers from boosting or even keeping their dividends in the near term.
To keep the stock market swoon in perspective, here are a few reminders.
Over the last 20 years, 24 of the 25 worst trading days were within one month of the 25 best trading days. Re-balancing works better than trying to take all money in and out of markets.
We all likely recall the 17-month financial crisis bear market (late 2007 to early 2009) where stocks fell cumulatively by 56%. The following 12 months the stock market was up 69%.
In the most recent trade war era from early October 2018 to Christmas Eve 2018, stocks fell 20% only to rebound 37% over the next 12 months.
Optimism, patience, and a little history can help calm our nerves and provide some reassurance at a time when a little reassurance can go a very long way.