Market Alert 3.13.2020

Buy, Buy, Buy!!!!

After yesterday’s record drop, now is a fantastic time to buy stocks.  If you can afford to contribute more to your 401(k), now is a very good time to increase your savings rate.  The best time to buy is when stock prices are low.  Stock prices are low.

To increase your savings rate, please go online / Click here for the form you to complete…

The stock market is off to a good start today, but the volatility is not over.  The market will test the new lows it has established.  That is a normal market function, even for this crazy market.  Once the market establishes the new base, it will move up from there.

The public and the market are clearly very spooked by the response to the coronavirus.  And the response will have a definite impact on the economic growth here and around the globe.  We already knew about the drop in growth in China due to the closures of factories and the resulting effects around the world.  The new shock to the market is the breathtaking response by companies and organizations postponing and cancelling events en masse.  The response is following sound medical practice, but it also seems the fear of liability is very high.

No matter the response, the virus and subsequent response are temporary.  All of this shall pass.

This is not a financial crisis.  This is not a real estate crisis.  This is not a banking crisis.  This is a temporary health crisis that will pass.  But before it passes there will be more infections reported here in the U.S. and in other countries where the virus hasn’t yet spread.  There will be more headlines about the number of infections increasing.  And there will be cancellations and postponements.  But the mortality rate will adjust to a more accurate level.  And we also hear about the many infections that result in a mild flu, or nothing.  Once this occurs the fear will subside.  And the market will, as it has following every single one of these crises, recover.

The response has included many employees self-quarantining and working from home and businesses throughout the U.S. sending employees home to work.  Many universities are cancelling classes and having students take their classes online.  Remote working and online education are getting a huge test.  It would not be surprising to see growth in both these areas moving forward.  There will also be substantial growth in online sales and entertainment.

The Fed is undertaking quantitative easing and is expected to lower rates further.  The Federal government is set to announce their response shortly.

Before the virus hit, the U.S. economy was in very good shape:

• Nonfarm payrolls increased by 273,000 in January and February.  The unemployment rate was 3.5% in February. 
• Retail sales were up 4.4% in January vs. a year ago.  Sales of cars and light trucks were up 1.9% over last year.
• Industrial production was up in February.
• Housing starts have been particularly strong lately, coming in at an average annual pace of 1.597 million in December and January, the fastest pace for any two-month period since 2006. 
• ISM Manufacturing index was still above 50 suggesting growth in factory activity nationwide.  The ISM non-manufacturing index, which measures a much larger share of the economy, rose to 57.3 in February, signaling strength.

Putting all this data into their model, the Atlanta Fed projects real GDP is growing at a 3.1% annual rate in the first quarter.  March data will bring that number down.  But the point is the economy was doing very well before the temporary coronavirus hit. 

The market will recover from this drop.  It won’t happen overnight, and it won’t be a straight line back to where we were two weeks ago, but it will occur.