Why is the market going up when unemployment is so bad?
This is a question we have received several times over the last couple of weeks. When you watch the news or check your favorite social media feed, you’re fed a steady diet of information regarding the historic job losses incurred due to Covid-19. While we shelter-in-place, there’s been plenty of time to ponder the implications of unemployment rates not seen since the Great Depression, among other things. US economic contraction in the 2nd quarter will dwarf what we experienced in 2008 and would be the most severe since the 1930s. That being said, economists expect the economy to build momentum in the 3rd quarter as the US re-opens for business. Government intervention with the current crisis is unparalleled to their actions undertaken during prior crises, both in the size and scope of the fiscal support. During the Great Depression, the US monetary policy was based on the gold standard and the ability of the government to assist in limiting the downturn and subsequent recovery were minimal. Responses to the Coronavirus include Fed rate reductions, direct stimulus to individuals and businesses and intervention in the municipal and corporate bond markets...and those are just the well-known responses.
Lower interest rates, while frustrating for investors looking for yield in CDs, money markets and new bond issues, make equity markets more attractive. By introducing such a robust stimulus response, the US government has tied itself to low interest rates for the foreseeable future. In April, the S&P 500 gained 12.68%, the Nasdaq gained 15.45% and the Dow rose 11.1%. While these monthly gains were some of the best in history for each respective index, the S&P 500 remains down 12.71% YTD through May 13th.
Well, so far you’ve said quite a bit without answering the question: With unemployment so high, why are we seeing a rebound in the market? Unemployment figures are a lagging indicator, focusing on what has already happened (as recent as it may be) whereas the stock market is a leading indicator which looks at future earnings expectations of companies. To quote the title of a memorable 80’s movie, the Market is “Back to the Future”. In no way are we trying to minimize the unemployment problem, debt, stress and other issues brought about by the virus. Rather, we’re optimistic that in the end we will eventually come back stronger and hopefully wiser. We expect continued market volatility while we navigate the re-opening process. How willing are people going to be to resume pre-quarantine routines such as going out to eat, traveling and going into work? All of this remains to be seen, but history shows that we tend to adapt to the challenges we’ve faced.
New Office Location
Another question we’ve received a lot of is when are we moving into our new office? Many are aware that we’ve purchased and renovated an office building in Highland. In the next few weeks we’ll be planning to relocate to the new space at 2603 Plaza Drive in Highland. While we are still under “shelter in place” orders - with modifications recently in Madison County - we will begin face-to-face meetings with clients in the near future which as a firm, we’re very excited about. As things progress, we’ll plan an open house and client appreciation event at the new location. In the meantime, we’ll remain by appointment only out of respect to all of our clients. If you need anything, have concerns or questions - of course call or email anytime.