A LOOK BACK - AND FORWARD - AT THIS WEEK'S MARKET VOLATILITY
March 9, 2020
This has been an information-intensive week displaying the continued health of the US economy. February saw the creation of 273,000 new jobs, while the 3.5% unemployment rate remained at a 50-year low. Wages continued to grow at a 2.9% annual rate, while inflation stayed subdued at 2.5%. Workforce participation rates continued at their high levels, or 72% for males and 59% for females.
Oil prices fell 33% from their December 2019 high, and, with consumers using 373 billion gallons of gasoline annually while spending 4% of their household income on it, this price descent is providing an additional source of consumer savings.
Despite the evidence of our economy’s resiliency, the S&P 500 nearly erased weekly gains as the index fell 1.71% today and eked out a 0.61% gain this week, though the index remains in correction. No, there was no shortfall of favorable economic news, but the expanding number of global Covid-19 infections has resulted in market volatility levels of 35%-40% for the S&P 500, far exceeding its historic annual level of 15%. It is uncertainty about the future path of this virus which is creating these wide swings, and not a sudden collapse in our economic or financial outlook.
Within the US, there have been several positive responses this week to this outbreak. First, the Fed dropped its short-term interest rate by 0.50%, its deepest cut since October 2008. Expectations are that it will lower this rate again within the next few months, as well as take other steps to assure sufficient levels of liquidity within our banking system and credit markets. Second, Congress passed a multi-billion-dollar spending bill to support medical needs at the national and state levels, and it appears determined to provide additional funds, if necessary. Third, the creation of a coronavirus task force has greatly expanded—and decentralized—the capability of local healthcare facilities to test and treat those affected by the virus. Finally, the learning curve about the virus is growing steeply as timely information is shared globally amongst healthcare providers.
Are there parallels to this week’s market volatility? As shown in the graphic below, there have been five instances since 1998 when markets fell 10% in one week. Except for the 2008 event which preceded the near collapse of the global financial system, each of these corrections resulted in market gains of 10%-28% just six months later. Even the 9/11 attack resulted in a market return of 17% within this period. While past performance is no guarantee of future results, it is important to assess such historic outcomes, amongst other information, when evaluating potential market movements.
One of our goals at The Mather Group is to provide timely and important information to our clients, especially during periods of market stress. We recognize that uncertainty affects both individuals and markets, and so we believe that the value of your personal financial plan is even more important at this time to achieve your retirement objectives. We encourage you to reach out to us if you have questions or issues which you wish to discuss further.
The opinions expressed, and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. The opinions and advice expressed in this communication are based on The Mather Group's research and professional experience and are expressed as of the publishing date of this communication. The Mather Group makes no warranty or representation, express or implied, nor does The Mather Group accept any liability, with respect to the information and data set forth herein. The Mather Group specifically disclaims any duty to update any of the information and data contained in this communication. The information and data in this communication does not constitute legal, tax, accounting, investment, or other professional advice nor is it intended to provide comprehensive tax advice or financial planning with respect to every aspect of a client's financial situation. Past performance is not indicative of future results.
Sources: Bureau of Labor Statistics; St. Louis Federal Reserve Board; Kensho Research; Energy Information Agency; Wall Street Journal; Department of Commerce, NASDAQ.
