First Quarter 2020 Executive Summary
Quarterly Executive SummaryThree short months ago, we capped out a year of unexpectedly high market performance. We began Q1 2020 upbeat -- enjoying an improved economic picture, alleviated trade tensions and reduced fears of recession.
Now, as we approach what many believe will be the apex of the Coronavirus crisis in the U.S., we are fighting a war on two fronts … combating the spread of this deadly virus while simultaneously battling the resulting economic fallout. The historic $2.2 trillion stimulus plan promises to soften the economic damage; but until the health crisis is diminished, the U.S. economy will remain hostage.
Will the economy come roaring back once the pandemic subsides? No one knows how long this volatility will last, much depends on how the nation’s response is implemented. But we are confident that in time markets will return to previous highs. The question is “When?”. Economic indicators are beginning to reflect recent events and impacts will likely become more dramatic over the coming months. (See recent economic data below.)
What can you do? Don’t panic. Stay focused on long-term goals with the understanding that “this too shall pass.” Stick to the plan … remember that you have laid a solid foundation and are working toward a goal, proactive and not reactive.
Most importantly, take care of yourself - both physically and mentally. The dark side of the pandemic is obvious - embrace the bright side. Positive emotions are a well-documented resource during times of crises. Remaining positive can increase your resilience, strengthen your immunity and help you think more clearly. Limit your media intake and focus on inspiration. Practice gratitude. Maintain a routine that includes adequate sleep, physical activity and time outdoors. Stay connected with loved ones through phone calls, social media and video chats. Lift someone’s spirits. We are all in this together, and the best way to help yourself may be to help someone else.
And as always, we are here for you. Together we can ride out this storm, united in hope, emerging different, but perhaps better.
Recent Economic Data:
Gross Domestic Product (GDP). The GDPNow model’s latest estimate (April 2, 2020) for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2020 is 1.3%, down from the April 1 estimate of 2.2%. Real GDP increased at an annual rate of 2.1% in the fourth quarter of 2019, according to the “third” estimate released by the Bureau of Economic Analysis.
Unemployment. Prior to the coronavirus hit, the economy was enjoying an unemployment rate of 3.5%, the lowest in more than fifty years. The unemployment rate rose to 4.4% in March. It’s estimated the U.S. could see as many as 47 million people lose their jobs as a result of the coronavirus-driven shutdown. This would result in an unemployment rate of about 32%, higher than what was experienced during the Great Depression. Keep in mind, once stay-at-home restrictions are lifted, unemployment should become more normalized.
Consumer Confidence. The Conference Board Consumer Confidence Index, an indication of consumer attitudes and buying intentions, declined sharply in March. It stands at 120.0, down from 132.6 in February, reflective of a deterioration in the short-term outlook.
Consumer Price Index (CPI). The CPI for All Urban Consumers (CPI-U), a measure of inflation which shows “cost of living” fluctuations, rose 0.1% in February, on a seasonally adjusted basis (the same increase as in January). For 12 months ending February, the CPI-U increased 2.3% before seasonal adjustments.
Earnings. For Q1 2020, the estimated earnings decline for the S&P is -5.2%, a revision from the year-end estimate of +4.4%. Analysts made substantial cuts to Q1 estimates based on reduce capacity and closures due to social distancing policies.
Housing. Privately-owned housing starts in February were down -1.5%, with year-over-year housing starts up +39.2 %. This update was prior to the COVID-19 crisis, and while it’s too soon to know the impact it will have, it’s possible the housing market will simply pause until the threat has passed (much like in China, where home sales nearly ceased, but home values did not decrease).
“What lies behind us and what lies ahead of us are tiny matters compared to what lies within us.”
- Ralph Waldo Emerson
Index | March 31, 2020 | YTD Return |
DJIA | 21,917.16 | -23.20% |
NASDAQ | 7,700.10 | -14.18% |
S&P 500 | 2,584.59 | -20.00% |
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Executive Summary Sources:
https://www.cnbc.com/2019/12/31/the-stock-market-boomed-in-2019-heres-how-it-happened.html
https://www.hopkinsmedicine.org/health/wellness-and-prevention/the-power-of-positive-thinking
https://www.frbatlanta.org/cqer/research/gdpnow
https://www.bls.gov/news.release/pdf/empsit.pdf
https://www.conference-board.org/data/consumerconfidence.cfm
https://www.bls.gov/news.release/cpi.nr0.htm
https://www.census.gov/construction/nrc/pdf/newresconst.pdf
https://www.morningstar.com/indexes/dji/!dji/quote
https://www.morningstar.com/indexes/xnas/@cco/quote
https://www.morningstar.com/indexes/spi/spx/performance
The views expressed represent the opinion of Asset Management Financial Solutions, Inc. (“AMFS”) and are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and AMFS’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties.