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Delicate Steps Along the Recovery Tightrope

The stock market has rallied some 40% since its March 23 lows, as states started reopening following stay-at-home orders. The S&P 500 index year-to-date returns recently turned positive, as the National Bureau of Economic Research declared the U.S. officially entered a recession in February. The most recent U.S. jobs report was unexpectedly strong showing employers added 2.5 million jobs in May, dropping the unemployment rate to 13.3%. The pre-report consensus expected more job losses and unemployment increasing to 17%. This recovery is a very fluid situation; predictions are complex and face daily alterations.

Employment is still down by almost 20 million jobs since February (compared to shedding 9 million jobs between December 2007 and February 2010). And over the last few weeks, previously spared U.S. states reported higher hospitalizations, dampening hopes for a smooth reopening and further indicating a potentially bumpy ride with markets and economies. The S&P 500, or the overall U.S. stock market, reflects this changing landscape, falling 7% last week and rising 4% this week. As cases spike, investors realize that regional stay-at-home measures could weigh on economic recovery even if widespread lockdowns are not imposed.

The duration of our current recession remains a matter of debate. Some officials believe we’re essentially “in this for the long haul,” while others see economic

supports leading to a quicker recovery. Like most prognostications, the truth often falls somewhere between the extreme. Recently, Federal Reserve Chairman Jerome Powell warned of a slower economic recovery from the pandemic and the Federal Reserve has been aggressive in supporting our economic system by providing the necessary dollars to keep markets orderly and support economic stimulus.

The economic outlook continues to depend on a range of factors, including the virus’ trajectory, the recurrence of outbreaks and future shutdowns, and additional economic aid from Washington. Officials are trying to gauge how much more support is needed for both households and states managing revenue shortfalls, and the White House and Congress are preparing to negotiate another round of stimulus.

Meanwhile, government plans to fund phase 3 human trials of three experimental Covid-19 vaccines being developed by Moderna, AstraZeneca and Johnson & Johnson starting in July, August and September respectively. Pfizer could separately start a phase 3 trial as early as July. Each study will include around 30,000 people at more than 50 sites. Researchers are hoping the trials will lead to answers within six to eight months, but some are saying their vaccines could be available for emergency use on a shorter timeline.

There has perhaps never been a more desirable time to possess a working crystal ball, however, we at Charter Oak are confident this pandemic will ultimately be in our rearview mirrors. Our clients' Financial Plans plan for market declines to happen on an average of every 5 years. As our clients and readers know, we’ve been actively rebalancing and adding to our clients’ stock holdings at distressed prices as well as harvesting tax losses to minimize tax burdens this year, and potentially in future years.

It is our pleasure and privilege to serve you and we welcome your thoughts and questions on current markets and how they relate to your Financial Plan.