March 23June 3, 2020 -
Categorized in: IAG News
Odds are increasing that March 23, 2020, was a significant bottom in the financial markets. There is always the possibility that this low will be retested if economic conditions deteriorate, but those odds shrink slightly with every day that goes by.
The days leading up to March 23 were filled with fear, including a harrowing one-day drop in the S&P 500 Index of 12% just one week earlier. The 34% tumble from the February 19 record highs was fastest onset of a bear market in history. Emotional traders were in outright panic selling mode.
But then two unexpected actions threw a wet blanket in the middle of this panic party, and a market bottom was born.
First, the Federal Reserve issued a press release on the morning of March 23 outlining their COVID-19 action plan. It included dusting off several programs it had used to help with financial liquidity during the Global Financial Crisis in 2008 and 2009 along with several new programs intended to shore up credit markets. The press release listed over $1,000,000,000,000 that would be used to stabilize credit markets, assist employers with cash flow needs, help municipalities get financing, and keep credit flowing to consumers.
Second, it became apparent that Congressional leaders were making significant progress toward an agreement on a $3,000,000,000,000 COVID-19 response bill called the CARES Act. The most impactful sections of this bill provided $1,200 direct payments to eligible taxpayers, boosted unemployment benefits, and made forgivable loans available to small businesses if they retained employees.
As grim as everything looked on March 22, unexpected positive changes flipped the fickle market’s mood very quickly. Traders responded enthusiastically to the $4,000,000,000,000 that would be poured into the economy through monetary and fiscal stimulus plans, pushing the S&P 500 higher by almost 17% in a mere three trading days following March 23.
While traders celebrated these short-term plans, long-term investors are led to wonder how the Fed’s creating an additional $1 trillion and Congress’ spending an additional $3 trillion will impact our country’s long-term well-being. What new challenges may have been born on March 23 along with a market bottom? If only we could know the future with certainty.
Instead, we are left to evaluate the impact on your family’s personal and financial goals as each day unfolds. Stay healthy, stay strong, and stay focused on the long-term (especially when the world looks grim).
Quote of the week: Shelby M.C. Davis: “History provides a crucial insight regarding market crises: They are inevitable, painful and ultimately surmountable. None to date has permanently derailed the market’s ability to compound over the long term.”