Jul 23, 2020

As People Return to Work, Market Rallies Following Pandemic-Related Plunge

As the economy started reopening and millions of people went back to work in early June, we saw the stock market continue its push higher from March lows.

Leading into the pandemic, unemployment was at a 30-year low of around 4%. Then in April, a massive unemployment spike of 14.5% – due mostly to COVID-19- related layoffs – left tens of millions of people out of work.

In early June, we expected another million job losses, but saw 2.5 million job gains instead – and the markets responded with a 3% rise, bringing S&P 500 levels to only slightly below where we started 2020.

We’ve seen a strong push from the federal government to stabilize the economy in the aftermath of COVID-19. The market’s reaction is also partly a result of that government support, in the form of:

  • A $4 trillion-plus stimulus package that included supporting workers through an unemployment benefit boost and the Paycheck Protection Program, which gave businesses forgivable loans to keep employees on their payroll
  • Federal Reserve policy that included reducing the Fed funds rate to zero and purchasing bonds in the open market

As we continue to experience economic pressure from the pandemic, an important question will be what type of fiscal and monetary support we continue to see moving forward.

How to Think About Investing Moving Forward

We typically experience some market volatility leading up to presidential elections, simply because the possibility of change creates uncertainty, which the markets react to. With that in mind, it’s important to remember history has shown us markets typically perform well in the year or two following an election, so election volatility is likely usually unwarranted.

When the market displays this type of resilience, despite so much uncertainty, investors can get a false sense of security that nothing can go wrong. Complacency toward risk can be dangerous, so try to cultivate more of a cautious mindset and continue to reassess your personal risk profile.

At the end of the day, we feel quite positive about the U.S. economy’s ability to overcome current circumstances and return to the 2% to 3% level of growth we were experiencing before the coronavirus hit. While there is much uncertainty over the economic recovery, the economy was on solid footing prior to the pandemic and looks poised to resume that momentum eventually.

For people with longer-term time horizons, we still think there’s value in holding U.S. equities. Even though bonds might not have attractive returns today, fixed-income is still an important cornerstone of your portfolio to provide income stream, preserve your principal and limit volatility.

No matter what happens in the markets, it’s important to keep your goals and risk parameters in mind. If you’re concerned your portfolio might not be balanced for potentially adverse outcomes, contact us to discuss rebalancing it.

Zac Wanzek

Zac Wanzek, CFA, CPA

SVP/Senior Portfolio Manager

Main: 701-298-2240

Direct: 701-451-3433