It would be an understatement to say that the U.S. economy has never seen a quarter quite like the 1st quarter of 2020.
The stock market posted one of its worst quarters in history, oil prices plunged by more than 60%, and the yield on 10-year U.S. Treasuries dropped to an all-time low. Gross domestic product (GDP) is projected to sink deep into negative territory after years of steady growth. And weekly unemployment claims spiked to more than 6 million – a jump of about 3,000%.
But while the numbers paint a dire picture, a little perspective may be in order.
As daunting as the economic and market impact of the COVID-19 pandemic may seem, the long-term picture may be far different. While we don’t know how long the pandemic will last, nor what the full extent of the economic fall-out will be, the general consensus is that at some point in the future, shops and restaurants will reopen, ballgames will be played, theaters and resorts will resume operations, streets will bustle with traffic, children will laugh, friends will gather, workers will return to their jobs, and business-as-usual will recommence.
From a historical perspective, although the 20% decline of the S&P 500® was one of the worst quarterly declines in history, it was relatively modest compared with the two worst bear markets of the past two decades. During the tech stock crash of 2000-2002, the S&P 500 dropped by about 50%, and during the Great Recession downturn of 2007-2009, the S&P 500 dropped nearly 60%.
In both cases, the market made a full recovery after bottoming out. After the tech crash hit bottom in 2002, the market rebounded by about 100% to its peak in 2007. After hitting bottom again in 2009, the market rebounded over the next decade by more than 400% before giving way to the COVID-19 crisis.
Near the end of March this year, as Congress hammered out a $2 trillion stimulus package, the S&P 500 posted its largest weekly gain in more than a decade, reflecting confidence on Wall Street that the economy and the markets will eventually return to normal.
But with 1st quarter earnings season nearly upon us, the mixed bag of upcoming corporate earnings reports will likely foster further volatility. If you’re a long-term investor, you need to be prepared to absorb some short-term shock waves in order to stay true to your long-term objectives. As Warren Buffet once observed, “We don’t have to be smarter than the rest, we just have to be more disciplined.”
Drilling down
U.S. stocks sink
The S&P 500 was down 20.00% for the quarter, from 3230.78 at the end of 2019 to 2584.55 at the end of March. It was down 12.51% for the month of March. (The S&P 500 is a market-cap-weighted index that represents the average performance of a group of 500 large capitalization stocks.)
The total return of the S&P 500 (including dividends) was -19.60% for the quarter, and -12.35% for the month of March.
The NASDAQ Index was down 14.18% for the 1st quarter and down 10.12% for the month of March. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)
Retail sales fall
Retail sales dropped 0.5% from the previous month in February, according to the Department of Commerce report on March 17. But those sales numbers were expected to take a much steeper drop in March as the effects of the widespread retail lockdown swept the nation.
Unemployment claims spiral
With massive layoffs across the entire food, hospitality, retail, and service industries, unemployment claims skyrocketed by about 3,000% in March, according to the U.S. Department of Labor (DOL).
After averaging about 215,000 unemployment claims per week over the past 12 months, total claims soared to 3.28 million in the week ending on March 21, and more doubled the next week to 6.65 million claims. That is a trend that may continue in future weeks as more businesses across the country temporarily close their doors.
