Market Commentary - May 2020

cutout words include coronavirus, panic, and bull market falls

There is a reason we encourage clients to avoid focusing too much on media headlines because while the data has been scary, oftentimes markets start to bottom when things seem at their worst. Below are some of the most “popular” headlines since mid March.

  • The Dow Jones had its biggest point drop in history Monday (March 16th)

  • More than 6.6 million initial unemployment claims for the week ending March 28

  • Three million out of work, $25 billion lost: 8 figures reveal how the coronavirus pandemic is devastating restaurants across America (March 31st)

  • Consumer Confidence drops to a 2017 low, and likely to get worse (March 31st)

  • Real unemployment in the U.S. has likely hit 14.7%, the highest level since 1940 (April 9th)

  • Oil prices turn negative for the first time in history (April 20th)

  • U.S. Economy has now erased all job gains since the Great Recession (April 23rd)

Without context, these headlines can seem pretty terrifying. During the period in which these headlines occurred, equity markets bottomed (at least for now) and have been off to the races since with gains ranging from 22% to 38% (as of April 29th). Part of the reason for this really was the crash in the 4 weeks prior with equities nosediving ~30% to -40%

The initial decline was pricing in a dire outlook and while sobering, much of the data released over the past month was expected and any positive news has sent equities higher. Couple that with government stimulus and aid from the Federal Reserve, there is now a sense of hope and direction. Does this mean we have seen the worst? That remains unclear. There are far too many variables to predict with any accuracy and much hinges on how successful states and countries can re-open without experiencing a dramatic spike in cases and hospitalizations. 

With that being said, not all news or market related headlines should be taken at face value. The media has a role to play, often it is for ratings and flashy headlines which are not accurate depictions of what is happening.

  • Biggest point drop in history: Far too often market losses are reported on a daily point decline and not on a percentage basis. These two data points paint entirely different pictures. To give a reference point, all six of the largest daily point declines in the history of the Dow Jones occurred in February & March of this year! Even further, twelve of the fifteen largest single day point declines occurred in the same period. That sounds terrifying right? When viewed as a percentage, as it should be, it equates to three of the fifteen largest daily declines, which isn’t nearly as bad. In fact, it should be expected that most of the largest daily point declines will come in the future as markets increase in value over time. The percentage change is most important, but that doesn’t “sell”, so don’t expect that to change anytime soon.

  • Oil Prices: Much was made how oil prices went negative. This headline made shockwaves for days. The reality is oil is not negative, nor is it free at the gas station. This occurrence more so had to do with how monthly oil futures contracts trade. In fact, monthly contract prices are in the low to high 20’s from July onward. This can obviously change based on supply/demand but this one day phenomenon did not translate into oil actually being “negative”. For a more detailed explanation, read this article.

The reality is we are in uncharted territory and there is no blueprint or manual to know how this will shake out. Until testing ramps up and a vaccine is in the works, the idea of getting back to fully “normal” doesn’t seem likely, but that doesn’t necessarily equate to doom and gloom either. Blocking out the noise isn’t easy as we are stuck at home with few distractions but making rational decisions based on your financial plan is paramount. We understand how scary times like this can be and are here to help. Please let us know if you have any questions, concerns or just want to talk.