The first quarter of 2020 started and ended in very different places. 2019 finished on a strong note, and we started the year with confidence in the year ahead.
Of course, we know that the economy goes through cycles of growth and contraction, and we were overdue for a downturn. The U.S. was in the longest bull market of its history, lasting 11 years.
Interestingly, it wasn’t an economic event that led to economic decline, or bear market, in mid-February. It was the novel coronavirus, spurring fear, uncertainty and job loss due to a national lockdown. After just over 30 days, that bear market turned back into a bull market. But that’s not the whole story.
The ups and downs of this year contributed to the erratic market behavior in the first quarter. Job loss and uncertainty over the pandemic led to market decline. Stimulus checks and states reopening led to renewed confidence.
There was also confusion among investors. Are we headed for a recession? Maybe a depression? Should we sell? Should we buy? This has been evident in the quick market changes over the past few months.
The bear market ended on March 23 and set off a series of economic ups and downs since then. We are currently on the upswing in a bull market, but it may potentially be what’s called a “bear market rally.”
A bear market rally is an upward spike after a bear market, signaling consumer hopes that markets are recovering and heading back toward a bull market. They can happen repeatedly during a bear market, and can sometimes be long-lasting. But during this time, they give way to market lows and eventually bottom out.
So how do we know if we’re in a bear market rally or are climbing back to the highs of early 2020?
One indication is history, and historically, we are more likely to be in a bear market rally. Every major crash since 1929 has had a bear market rally. This one, most likely, is no different.
Another factor is rampant uncertainty. There is a very real risk of a second coronavirus wave in the fall, which could hit the economy again. There has also been a spike in very visible corporate bankruptcies, with stores like JC Penney closing up some, or all, of their brick and mortar locations.
That, in addition to a higher than usual unemployment rate could rattle investors’ confidence as time goes on.
What Happens Next?
There is still a ton of uncertainty looming in the U.S. and around the world. A successful coronavirus vaccine could boost the economy, but a second wave of cases this fall could cause it to drop again.
The bottom line is that it’s important not to be too hasty. If 2020 has taught us anything, it’s that things can change dramatically in a moment’s notice. Hold steady. Refer back to the investment advice I talked about in this post. And remember that even the experts are taking shots in the dark right now, because we are living through unprecedented times.
If you’re struggling with managing your portfolio or concerned about the economic impact to your investments, I can help. Contact me here to set up a call.