Our 2020 Mid-Year Economic Update
By Michael Vaughn, CFP®
How’s your 2020 going so far? Unsettling? Unexpected? You’re not alone. The world as we know it has been turned upside down by five letters and a number: COVID-19. While the coronavirus pandemic is at its core a health issue, the downstream effects of it on other aspects of our society have been significant, perhaps the greatest being economic. As we reach the mid-year point of 2020, let’s take a look at what is going on in the economy, most of which can trace its roots back to COVID-19.
Stock Market Reactions
The year started off strong, with the S&P 500 reaching all-time highs and peaking on February 19. Then it all fell apart. In a little over a month, the index fell 34%, bottoming out on March 23. It’s been a bumpy ride, but the market has climbed out of the hole it was in and gained back 37% (as of June 15) from that low. (1)
Now, it may seem as if the S&P 500 has made up for all of its losses if it lost 34% and then gained back 37%. However, that is not the case because each percentage is based on its relative high or low. The index peaked at 3,386.15 points before falling 34% to 2,237.40. That loss was 1,148.75 points. Growth of 37% from the low point only accounts for 829.19 points, which means that the index overall is still down 9% from February’s high.
In addition to stock prices improving, volatility is calming down as well. In mid-March, things were swinging around so fiercely that the S&P 500 achieved double-digit movement in single days. Things have calmed down a lot since then, but volatility is still higher than it was pre-crisis. Things just seem calm now compared to the craziness of what has been called the longest March ever. (2)
An Unemployment Record
Perhaps the area that has been impacted the most by the COVID-19 containment efforts is employment. It’s hard to keep a job when companies are shutting down and people aren’t allowed out of their homes. Weekly new unemployment claims have shattered all previous records by multiples. The official unemployment rate for April was 14.7%, though estimates put it closer to 20% due to some data-collection errors. (3) As states began to reopen, 2.5 million nonfarm jobs were added, dropping the unemployment rate for May to 13.3%. (4)
Federal Reserve & Government Intervention
The Federal Reserve stepped up early on in the pandemic to slash rates to near zero. It has also worked hard to provide financing for businesses trying to stay afloat in these turbulent waters.
Congress has passed a number of bills to aid both individuals and organizations, the largest being the $2 trillion CARES Act, which was signed into law on March 27. The Act provided individual stimulus checks, enhanced unemployment benefits, and loan programs to help businesses. Despite extreme actions taken by both the Federal Reserve and the federal government, some economists still say that they will need to do more before meaningful recovery will take place. (5)
As the country eases out of lockdown and restrictions are being loosened, there has been an uptick in economic activity, though not enough to stop the economy from contracting. The leisure and hospitality industries which took a big hit are starting to recover. The service sector is opening up as people begin leaving quarantine conditions. Factory activity is still down and agricultural conditions are deteriorating. (6) Overall, pessimism reigns supreme over the economy, even while some Federal Reserve policymakers believe we are either at or near the bottom and are expecting a rebound in the second half of the year. (7) Historically, at points of extreme pessimism is when markets are likely to begin recovering followed by economic conditions.
How Should You Respond?
As you can see, this year has been anything but normal so far, and there are more than likely going to be even more plot twists throughout the summer and as we enter fall. While the global economy is still gaining its foothold, it is not the end of the world. We may have some hard months and years ahead of us, but it isn’t the first time our nation has faced challenges like this.
While our economic woes may not be new for history, they very well could be new for you. In difficult times like these, it is helpful to have a trusted advisor that you can turn to for financial guidance and support. You don’t need to go through this economic crisis alone; I am here for you. Schedule your meeting by emailing me at [email protected], calling (417) 351-2942, or using my online calendar.
Michael Vaughn is a Certified Financial Planner™ (CFP®) and Vice President at Pinnacle Financial Advisors (PFA) with 20 years of industry experience. Before joining the PFA family, he served clients with investment management and retirement planning at The Mutual Fund Store for 14 years. Michael graduated from Missouri State University with a bachelor’s degree in business administration and management and earned his CFP® designation in 2004. He also served 20 years in the Missouri National Guard, retiring in 2007 as a Major. He currently volunteers on the board of directors for Good Dads and Fellowship of Christian Athletes. He and his family attend Hill City Church, where he serves as an elder. Michael is married to Lori and they have two daughters. To learn more about Michael, connect with him on LinkedIn.