Video: The COVID Recovery Expect More Volatility
Thursday, June 18th, 2020

Stephen: If you want to know what’s going on with the stock market and why it’s recovered so swiftly from the COVID-19 pandemic, then you’re going to want to watch the rest of this video. I’m your host Stephen Rischall along with my co-host Chris Carter and this is the Smart Money Show.

Welcome back and thanks for tuning in to another episode of the Smart Money Show, today we’re going to be talking about what’s been going on with the stock market and why it’s recovered rather swiftly from COVID-19 even though the numbers we keep seeing about the economy aren’t really so great, and it’s not like COVID-19 is a thing of the past. Chris what do you think was the initial reason why we saw such a big drop and what’s going on right now?

Chris: Whenever the stock market drops as much as it did through the end of February into March, it’s because of uncertainty. That’s been the case in previous stock market shocks and then will be the case in future stock market shocks.

Whenever there is a high level of uncertainty, let’s face it we still have a high level of uncertainty, but we had an extreme level of uncertainty during that time. So once we were able to get through a little bit of the initial noise and what it could mean, the markets took a look at itself and just looked forward like it tends to do, and have stabilized quite a bit.

Stephen: That’s the big difference for different sized companies, for a large company or even a small or medium sized, but not a Mom and Pop’s restaurant down the street. Bigger companies and asset values tend to look forward, and they can look forward quite a bit. Whereas the local restaurants and the shops down the street that we love and want to support, they need that cash flow today. So a little bit of a different situation for them.

Now outside of the uncertainty, which okay, I guess we can see the light at the end of the tunnel, but we’re in the tunnel still, what else is there, it’s not just that we feel a little bit more confident today. What else is going on Chris?

Chris: Yeah, one of the big reasons that the market has stabilized and recovered as much as it has is because of the Fed, because of the government intervention in the markets.

We can save whether or not that’s a good or bad thing and what it means long term for maybe a future episode. But for the purposes of stabilizing the stock market they absolutely did that by injecting liquidity into the markets, and really why that’s important is because the credit markets can freeze up when there’s an economic and stock market shock like we had.

That can be extremely detrimental to the companies, to their stock price, and to the economy. The Fed stepped in with a very aggressive bond purchasing program, and other stimulus that has done a really great job of providing that stability.

Stephen: One thing is for sure, the government did step in and basically they sent a message that they were not going to let the American Consumer or the American Business fail, to the best of their ability. Again, I think we’ll have to go into that in more detail in a future episode, but clearly it’s had an impact.

Then there’s also these low-interest-rates. That’s helped everything from large companies that are healthy, they’ve been able to refinance a lot of their debt and put out some bond issues, and it’s done really well.

Let’s face it, the companies that were already unhealthy going into this, they haven’t fared so well. We’ve heard the stories about bankruptcies and re-organizations, and it’s really not that much of a surprise, although it’s not nice news.

Let me ask you this Chris, interest rates have helped the folks at home with refinancing their mortgages, and for those who have student loan debt. of course. but when it comes to the stimulus. do you think that we’re going to see a second round of stimulus for individuals?

Chris: Well I think the Fed has made it very clear that they have basically everything on the table and they’re willing to do whatever it takes to make sure that this pandemic does not cause further economic damage.

They’re able to stop that bleeding process as much as possible, so you know I can’t say they are, or they are not, but I certainly would not put it beside them to think that they would that they would completely not think about it and I think like I said everything is on the table.

Stephen: That’s a fair point, and we’re kind of still going through some of the stimulus. Sounds like you’re probably in the camp that there’s a good chance they might if things get worse.

I’m going to take the other point and predict that they’re probably not going to step in, at least to provide a similar stimulus like the checks mailed out to people. I think things probably improved enough, but we’ll have to check back in a few weeks on this one.

Now look, another thing that’s really clear is in times like these, and we saw a immense volatility back in February and March, and it’s still here, what can we learn from previous market cycles and situations about volatility, and what should we expect moving forward?

Chris: Whenever the market drops as much and as fast as it did, and this was the fastest it ever dropped in history, so it is unprecedented, but the market dropping as much as it did percentage wise is not unprecedented.

What you see is, after the market bottoms, and a great example is to look back at 2009, the financial crisis that we went through. The markets bottomed in March of 2009, and for the next 12 months the market was up 65%.

But there were thirty-three days where the market was up or down 2%, right so if the DOW is at 25,000 that’s a 500 Point move up or down which is very volatile. So history tells us volatility happens in these recoveries, whether it’s good or up volatility or bad is down volatility, we have to expect that.

We’ve seen it and we just have to expect more of it.

Stephen: I think that’s a fair point, I just shared some of those charts on the screen that showed what happened after 2009 into that sustained recovery, as well as all the up and down days.

I’m going to put up on the screen here real quick, the market as of this year. The S&P 500 back in January, we see the the steep decline starting in late February into March and then we’ve seen a pretty good recovery so far. But if you just look at the shape that has that jaggedness with the ups-and-downs, that is volatility visualized for folks at home to see that it in a different light.

So I think the moral of the story here is, uncertainty was a big reason why the market fell so fast, and having a little bit more certainty today is probably why we seen the recovery we have even though the economy and COVID-19 are still big question marks.

Don’t fight the Fed, right Chris, we were saying the Fed has stepped in, we don’t want to fight the Fed, if anything you should probably follow the Fed. And it sounds like volatility is here to stay.

Anything else you think we should add to that for our viewers at home?

Chris: That’s an old investment saying, right “don’t fight the Fed” so we certainly are not going to say that you should be doing that.

Like we’ve said in previous episodes, like we talk about all the time with our clients, is you have to have a long-term perspective.

Yes, we are expecting this volatility to be here for a while. But when you see those days like down to 2%, 3%, 4% just know that is part of the process. It’s uncomfortable, it’s unsettling, we know.

The most important thing is just understanding where you stand with your risk in your investments. Talk to your advisor and make sure that is where it should be. If you need to make adjustments, by all means, do that with help from your advisor.

Stephen: Well, there you have it. Hey if you like this video show us some love, give us a like and be sure to share this with some of your friends and family because they probably have a lot of the same questions that you do about the stock market, their investments and what’s going.

Until next time, this is the Smart Money Show and we’re helping you get smart with money.