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These are extraordinary times. The unique nature of this biological event on both a global and regional scale leaves many of us with an unsettled feeling.
We're all concerned about the health and well-being of our families and friends with an added layer of what is happening in the markets. In fact, the only expectation we can have is that market volatility likely will continue for some time.
You may be wondering when it will end, what have we learned and what you can do today. Let's break down those key questions.
The short answer is yes: We can expect a rebound. The longer answer is it might take some time, and we think this volatility is likely to continue in the interim.
The magnitude of these daily swings is a reflection of the unique risk of this human health care crisis and the unprecedented efforts to contain its spread. This range of unknowns raises the uncertainty around the timing of a rebound and the impact between now and then.
Here are four elements we believe are necessary for the market to ultimately find some footing and begin that rebound:
There are no perfect parallels between what's happening today and what's happened historically, either in the economy or in the financial markets. But we do know that the stock market has peaked on average about six months before a recession emerges, with economic conditions decelerating before eventually falling into contraction.
Things are different today. Current conditions are anything but typical at the moment, and given the unprecedented measures being taken to limit this contagion, we're likely to see a material downshift in the growth rate of the economy. At this stage, a recession is much more likely, although we believe it will be relatively short.
This is not, in our opinion, a repeat of 2008/2009, however. We're seeing similar elements, such as extreme volatility and big declines, show up in the stock market. But it's important to draw that distinction because that does help ultimately shape the rebound that we think will take place.
The financial and banking systems coming into this health care crisis were on firm footing, and still appear to be. We don't anticipate unemployment to experience a sustained spike, as we would traditionally see in a typical recession. You would see unemployment rise to excessive levels and then take a long time to find its way back down.
That’s typically the case in a traditional recession and the root cause for a more slowly developing recovery. To be clear, we think the economic impact is going to be quite severe in the near term, but we believe we have a foundation to lead a rebound later on this year and into next year.
Given the economic foundation, we think the recovery in economic activity and business investment can be faster and more vigorous than we would normally see coming out of a recession.
Looking back at bear markets (a decline of 20% or more in the stock market) since 1955:*
We know this condition is unique. We don't expect it perfectly replicate this historical data. But markets ultimately find a bottom, and we think the broader-term outlook can remain positive.
We believe these five actions can help you navigate this period of uncertainty and market volatility:
Talk to your financial advisor about whether these strategies may be appropriate for your situation to take advantage of this volatility and keep you on track to your long-term goals.
*Source: Bloomberg, S&P 500 Index. Past performance of the market is not a guarantee of how it will perform in the future. The S&P 500 is an unmanaged index and not available for direct investment.
Systematic investing does not ensure a profit or protect against loss. Investors should consider their willingness to keep investing when share prices are declining.
This information is for educational and illustrative purposes only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation.