You may not feel like being congratulated, but congratulations are in order. You have managed to live through the worst first quarter on record in the U.S. investment markets.
You also endured the fastest, longest, hardest roller coaster ride in market history, as measured by the VIX volatility index. Basically, that means that one day the markets were down at record or near-record levels, and then as we thought perhaps the bear market would continue, we experienced near-record one-day gains.
The previous record for instability in the stock market was an eight day stretch in November of 2008, when the markets seemed to be gyrating up and down uncontrollably after traders realized the full implications of the collapse of Lehman Brothers. At the end of this recent first quarter, the CBOE Volatility Index (VIX), presented us with a record 10-day run with the index above 60. (The long-term average for marketing volatility, as measured by the VIX index, is 20.)
Just about every asset class outside of bonds saw declines in 2020’s disastrous first quarter.
You don’t have to ask why Wall Street traders are abandoning stocks in near panic mode. The coronavirus epidemic, social distancing and the closure of home offices, malls, theaters and anywhere else where people once gathered to work has raised uncertainty about the extent of business disruption in the U.S. and world economies. Unemployment has sky-rocketed, with record numbers of people applying for unemployment benefits.
All is not lost, of course. There is every reason to believe that the U.S. will be back at or near the record-low unemployment when people are once again allowed to return to work and leave their homes to shop. To staunch the bleeding, America’s central bank is pouring more than $3 trillion worth of loans and asset purchases into the U.S. financial system—an unprecedented commitment. The recently passed CARES aid package is worth an aggregate $2.2 trillion, followed by a $484 billion package to replenish the small business loan program (with more aid potentially on the horizon).
There are times when we all face challenges more important than the ups and downs of the markets, and this time certainly qualifies. Staying safe, staying well, staying alive and keeping our loved ones out of harm’s way takes priority in this global pandemic. We are, of course, monitoring the markets. We believe that the traders who are making panic-stricken departures from the market are overestimating the long-term harm to Corporate America and their business counterparts around the world.
Just like in 2007-2009, we have to believe in our collective resilience to weather yet another “once in a century” storm, and in the value of persistence while many investors are making decisions out of panic. Wall Street’s quick-twitch traders may be caught like deer in the headlights, but seldom has a strategy based on fear turned out well in the end.
We all have much to be grateful for. We look forward to a time after this pandemic has swept across the world when we have more to be grateful for, including the safety of our loved ones, and a return of value to our portfolios and to our country’s (and the world’s) economic well-being.
This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice