Stocks fell into bear market territory as impacts from “social distancing” measures rippled through the country. It’s clear that people’s day-to-day routines and livelihoods will be temporarily disrupted in a global effort to limit spread of coronavirus.

The uncertainty is playing out in the markets as well. Stocks notched their worst day since 1987 on Thursday, only to log their best in a decade the very next day. While things feel unpredictable right now, market-moving uncertainty is nothing new.

In the wake of 9/11, the deep impact of terrorism weighed heavily on this country. In 2008, the very survival of the financial system came into question. Bear markets accompanied both major events as the future was so uncertain at the time. But we eventually found the path forward and society, along with the economy, recovered.

Today things feel similarly uncertain, but we think the path forward appears a little clearer than it did during past crises. We know that limiting exposure to other people can slow the transmission rate, reducing strain on the medical system. That’s why so much is being closed, postponed or canceled. Health experts say these proactive measures, along with testing, can reduce the severity of the outbreak, slow its spread and protect vulnerable populations. In the meantime, policymakers are stepping in to aid consumers and businesses along the way to improve health outcomes and provide an economic cushion as business activity temporarily slows.


President Trump Declares National Emergency: President Donald Trump declared a national emergency on Friday to combat coronavirus, unlocking $50 billion in funding for states and loosening restrictions on doctors and hospitals. Trump waived interest payments on student loans and will purchase oil for the strategic reserve, as well. The president also rolled out a broad partnership with private sector companies such as Roche and Walmart to tackle the various logistical challenges associated with manufacturing and distributing tests.

On Saturday, the U.S. House of Representatives passed a coronavirus relief bill that received the pre-approval of President Trump. The bill includes free coronavirus testing, paid sick leave (for businesses with 500 employees or less) and expand funding for Medicaid. The Senate will take up the bill this week.

One factor that drove market fear was uncertainty about the government’s response to the coronavirus. But Friday’s announcement helped provide a little more clarity on the steps leaders are taking to address the health and economic implications of the virus.

Federal Reserve Steps In: In a surprise move, the Federal Reserve on Sunday slashed interest rates 1 percent to near zero. Among other measures, it also announced it would purchase $700 billion in Treasury and mortgage-backed securities to prevent market disruptions (i.e. quantitative easing that was used in 2008 and 2014). The rate-setting committee said the central bank would hold rates at these levels “until it is confident that the economy has weathered recent events and is on track.”

Earlier last week, the Fed stepped in to stabilize the U.S. Treasury market following “highly unusual disruptions.” Basically, the Fed stepped in Thursday with a bunch of liquidity to ensure the market continued functioning smoothly — think of it like unclogging a drain. The Fed acted because when the Treasury market slows, the rest of the financial system slows, too. Following the Fed’s actions Thursday, U.S. Treasury Secretary Steven Mnuchin said the government and the Fed would continue to use all tools to support the proper functioning of the market.

As we have been saying, we expected policymakers to step in and provide support through a rough patch. We are now seeing evidence this.

Jobless Claims Still Historically Low: The total number of Americans who applied for unemployment in the first week of March remained near a five-decade low. Initial jobless claims fell to 211,000 for the seven days ending March 7. Thus far, the data don’t reflect a rise in coronavirus-related layoffs. It’s also a reminder that our economy came into today in a position of strength.

Consumer Sentiment Falls, as Expected: In our comments over the past week, we said there’s no doubt the economic data will soon reflect the impact of coronavirus and a slowdown in activity. The University of Michigan’s consumer sentiment index was one of those early reads. While still historically strong, the index fell to 95.9 in March from 101, the weakest reading in 5 months. The reading covers the first 11 days of March, just as coronavirus developments were accelerating. Keep in mind, data coming out over the next several weeks will be volatile, and that’s entirely expected.


We Think Volatility Sticks Around: As the path forward continues to grow clearer, we believe volatility will likely stick around. But you shouldn’t necessarily take too many cues from daily moves in the market right now. Long ago (a decade or so), most investors traded based upon intermediate- to long-term outlooks. But that’s changed. Today, many investors (and computers) trade based upon their outlook for the next 24 hours or even 15 minutes. Investors now to try out-react each other based upon the latest headline. We think this hyperactivity makes the market less of a leading indicator than it used to be. However, we think this creates opportunities for long-term, steady investors who can look past tomorrow.

A Few Things We’re Watching: We’ll continue to keep an eye on key economic data reports this week, with retail sales, weekly jobless claims, production and housing data coming up this week. Federal Reserve Chairman Jerome Powell will also speak on Wednesday, and his words will certainly carry added weight after the past few weeks.

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