Walking the Coronavirus Recovery Tightrope

We are nearly two months into the COVID-19 stay-at-home restrictions, and signs of hope are starting to emerge. Some states have already begun trying to return to our collective “new normal”, while others are beginning to lay out conditions for reopening. Here in New England, Maine and New Hampshire announced their reopening plans this week, and Massachusetts Governor Charlie Baker now has a team working on a plan.

Reopening talks are positive signs, along with April being the market’s best month since January 1987. The S&P 500 gained nearly 13 percent and as of Thursday’s market close was up nearly 30 percent from its March 23 low. The April rally highlights investors’ confidence that things will turn around and economic activity will follow. Markets tend to rebound before improvements in economic fundamentals appear, because investors buy shares based on what is predicted to happen later in the year. Only time will tell if markets are getting it right; a lot will depend on how quickly our economy can recover while keeping Americans healthy and safe.

Over the past several weeks, the Federal government and our central bank have pumped trillions of dollars into our economy and financial markets. Talks of further stimulus are ongoing and would be expected if health conditions do not improve. Social distancing appears to be reducing the spread of infection. States are starting to reopen and get their economies moving again. Research into potential COVID-19 treatments and vaccines is moving at record pace around the globe.

These are all positive developments supporting our return to “normal”. However, the next few weeks and months will allow what has been described as a “high stakes balancing act” to unfold. The economy is not expected to suddenly get back on track like a switch being flipped from “off” to “on” - just as our lives will not suddenly return to normal. It is expected to be a gradual progression which may result in a few steps forward, and then a few steps back, and so on.

Current headlines are still detailing many staggering numbers and you are likely to be inundated with data concerning the COVID-19 death toll, the more than 30 million Americans applying for unemployment, the worst quarterly U.S. gross domestic product contraction since 2008, the steepest monthly drop in consumer spending since 1959 and the largest decrease in personal income since 2013.

Top economists are projecting further contraction of the American economy this year. The Congressional Budget Office expects unemployment to hit 16 percent by the third quarter. J.P. Morgan economists believe the American economy will shrink at a once-unthinkable 40 percent annual rate in the second quarter, and April’s unemployment rate will be 20%. (April’s official unemployment rate will be announced next week.)

While all these numbers are important, top economists and markets are weighing in and currently telling us that the economic stimulus may be enough to provide the needed bridge to get back on track. Again, time will tell as we walk this recovery tightrope.

At Charter Oak, we have been and will continue to watch closely as the pandemic recovery unfolds. The market’s response will depend on whether economists’ predictions materialize, if they emerge better or worse, and whether our future health and safety feels secure.

Above everything, scientists and medical researchers are working hard to identify treatments and vaccine candidates. Solutions may be found much sooner (or later) than is anticipated; it all remains to be seen. Of course, we will act when we feel it is prudent, and keep you posted along the way.

In the meantime, your Charter Oak team is working hard to serve you from our home offices. It gives us great pleasure to connect with our clients in this time, and to continue as your trusted teammates in managing your investments, overseeing your financial plans and coaching you through these challenging markets.

We recently celebrated the 85th birthday of our beloved colleague Bee Jay Gallant via Zoom. Here is a photo of that remote gathering.

We welcome hearing how you are passing the time while staying at home and look forward to hearing from you.