Should we temper our expectations?

I think we should.

As I write this on the afternoon of Thursday March 26th, the Dow Jones Industrial Average is up close to 4,000 points from the intraday lows hit just three days ago on Monday March 23rd.

Pundits and prognosticators are giving interviews today, many of whom are boldly calling that the “bottom is in”.

I would love to believe that the worst of everything is behind us, but if history is a guide, it is not uncommon for the stock market to see a huge move to the upside after periods of violent selling, only to see the lows “retested” several days or weeks later.

Regardless of if we are off the lows for good or not, I don’t think that changes the longer-term outlook, which is that “this too shall pass”.  I’ll provide more details on that at the end.

I’ll lead off with the bad news first so I can end on a positive note.

The known and the unknown:

There is still a lot of bad news out there, some of which is known, and some of which is still unknown.

• We found out today that unemployment claims skyrocketed to 3.3 million people last week, versus consensus expectations of 1.5 million new claims.  I’ll make the argument that the 3.3 million figure is still under reported, because the unemployment offices have been overwhelmed, and some people who are eligible for benefits have not yet been able to apply.  While the number was bad today, it will most certainly get worse in the coming weeks.

• Within the next few days, the US will most likely pass both China and Italy in terms of the total number of coronavirus cases (although thankfully our death rate is currently below each of those countries).

• The Cheesecake Factory, a restaurant chain with 300 locations in the US and Canada, sent a letter to their landlords yesterday telling them that they would not be paying their monthly rent due on April 1st.   Some think this is a negotiating ploy by the company to get rent concessions in long-term leases, while others think it is a strategy to push for additional government bailout dollars.  One thing is for sure though, now that the Cheesecake factory has made this announcement, other companies will surely follow.

• The $2 trillion stimulus plan agreed to by our elected leaders isn’t a “fix”, but rather a “bridge”.  $2 trillion is a lot of money, but the total GDP of the US last year was $21.4 trillion.  If we divide this number by 365 days, $2 trillion replaces our GDP for 34 days.  In reality, that number will go further, because GDP won’t be $0 over the next several weeks, but it certainly could fall to just 20% – 40% of normal.  Regardless of what number we use, the effects of this $2 trillion stimulus will be gone in the next 1-2 months.

• Depending on which doctors, scientists, or politicians you listen to, we are probably still a month away from the virus peaking in the US.  During this time period we will get the bad news every day of new cases, new deaths, and new stresses put on our healthcare system.   The constant reminder of “bad news”, plus the effects of prolonged “social distancing”, is enough to depress anyone.

So what is the good news?

• The $2 trillion stimulus package passed last night is a good start, and the stock market thus far has reacted positively.  Even though I think more will be needed in another month or two, Washington seems willing to direct unlimited funds towards providing economic relief to our citizens.

• The Federal Reserve Board has also been very active, by dropping its overnight interest rates to near zero in order to make it easier for banks to lend money to corporations.  More recently the Fed has pledged to reinstate its quantitative easing program, which means buying treasury securities, mortgage-backed securities, and even investment-grade corporate bonds, to make sure the bond market continues to operate with no liquidity issues.  The problem, of course, is that low interest rates are not a cure for economic activity that is shut down.  We need to see progress with the virus itself, which can only come through time.

• Governor Cuomo of NY said yesterday that the rate of infections in NY’s initial hot zone of New Rochelle have slowed.   NY first closed all gatherings in New Rochelle on March 12th, and now two weeks later we have some good evidence that social distancing has been making the virus outbreaks more manageable.

• 500 movie theaters opened back up in China for the first time since January.  China had a few months head-start on the US, and we are starting to see some parts of life in that country returning to normal.  It takes time.

• There seems to be more and more of a “sense of purpose” across the country, that most citizens are taking this seriously (absent a few knucklehead spring breakers in Florida).

What does the future look like?

All of us are scared.  You might feel disoriented, fearful, and anxious as our sense of “normal” has been disrupted.  Our anxiety is only intensified by the lack of any “good news” on the television or websites that we view.

If this 4,000 point rally in the stock market goes away and we retest the lows of last week, the small amount of relief investors have felt over the past few days will go away as well.

I am confident that all of this is temporary.

Finding treatment protocols, and ultimately a vaccine, for this virus is the #1 priority of scientists and researchers around the world.  There is a ton of brainpower, and financial resources, being dedicated to this problem, and scientists are more knowledgeable and better equipped than ever to deal with the challenges we face.

Creating a vaccine won’t bring back the lives that have been lost, but it will help prevent this virus from harming the same number of people in the future.  It will also help prevent future large-scale disruptions to the economy and social distancing “lockdowns”.

For those who might think a vaccine won’t be discovered, all we have to do is to look at the history of similar illnesses that scientists around the globe have successfully tackled, such as:  Yellow fever, Cholera, Diphtheria, Typhoid, Whooping Cough, Spanish Flu, Tuberculosis, Encephalitis, Rabies, Chickenpox, Mumps, Measles, Smallpox, Meningitis and the list goes on.  Each of those diseases impacted the world, and ultimately the scientists and researchers figured them out.

There will come a point in time, perhaps by this summer or fall, when families will once again travel to take their children to Disney World.  When young adults will hit the neighborhood bar after work on a Friday evening.  When grandparents can venture out to enjoy their grandchildren’s soccer games.  These activities will be back before we know it. 

Just like I think we should temper our expectations for this recent bounce in the stock market, we also must temper the negativity that will continue to come at us over the next several weeks.  All our lifestyles have been disrupted, but this is just a point in time.  A season in our lives.  And this too shall pass.

About the author

William B. Burns, Jr. CFP® is a CERTIFIED FINANCIAL PLANNER professional and President of Burns Matteson Capital Management, a Financial Planning and Investment Advisory Firm with clients in 21 states throughout the US. He helps high-net-worth families reduce the worry and anxiety sometimes associated with wealth, allowing families to reclaim that time to reinvest back into their family, social, and professional relationships. www.BurnsMatteson.com