Pandemics on the scale of the current COVID-19 crisis don’t come along very often. But the damage they cause is almost impossible to escape.
What’s an investor to do?
“My main objective is to keep people calm and (to advise them) not to make any panicky moves,” said Bob Canterbury, a senior wealth advisor at BST & Co. CPAs in Colonie.
Certainly, those in the stock market have felt the pandemic’s impact.
Hugh Johnson, founder, chairman and chief investment officer at Hugh Johnson Advisors, said Friday afternoon that equities were down 32 percent from their peak and Johnson said the U.S. economy likely would continue contracting through the third quarter, with zero growth for all of 2020. Before the pandemic, the consensus forecast of economists was that the U.S. economy would expand by 1.8 to 1.9 percent this year and next.
How bad might conditions become before we see improvement? After all, state officials were projecting last week that it could be another 45 days before coronavirus cases would even peak.
“This has been the longest bull market,” Johnson pointed out. “But trees don’t grow to the sky.”
The silver lining to the bear market is that we’ve gone from overvalued to being significantly undervalued, Johnson said.
“That doesn’t mean that it’s over. We may have seen the most damage — I cross my fingers — to the markets,” he said. “But the period of volatility is not behind us,” Johnson added. “It’s going to be some time before we get signs of containment and that businesses and individuals are starting to come out and go back to work.”
Economic activity in such industries as airlines, restaurants and manufacturing evaporated as businesses closed and employees stopped working. UBS analysts on Friday predicted a “deep recession” this year. And Goldman Sachs predicted that U.S. gross domestic product in the second quarter would contract by 24 percent, the largest decline in history and two and a half times the size of the previous largest drop of 10 percent in 1958.
When the U.S. Federal Reserve cut interest rates nearly to zero, it was to make borrowing affordable, Canterbury said, acting almost as a lubricant to help businesses survive.
The damage has been deep. Johnson, asked if we might see a depression, said “there’s no question the magnitude of contraction in the second quarter is going to be reminiscent,” but added “I don’t think it is in the cards.”
Johnson said the Federal Reserve was doing what it needs to do, adding liquidity to the financial system.
And Canterbury offered some suggestions to get through this period, such as establishing or maintaining a bigger cash reserve than you would have on hand normally; logging in and looking at your 401(k) account to see whether you want to rebalance accounts; review your health and life insurance coverage and confirming beneficiary designations are up to date; and reviewing your household budget to reduce discretionary spending.
Those saving for their children’s college education through so-called 529 plans might also want to consider whether age-based options, usually more conservative, might be appropriate as their children approach college age.
Economic activity was expected to slow further this weekend as states began suggesting more people stay home. While Gov. Andrew Cuomo declined to call it “shelter in place.”
Johnson said he’s studied previous recessions and pandemics, including the Spanish, Hong Kong and Asian flus and the 1987 market crash. “We eventually recovered in every case,” he said.