Each year, basketball fans look forward to the NCAA Basketball tournament and the time of year affectionately called, March Madness. However, this year it was cancelled and replaced by market and economic madness brought on by the coronavirus. In short-order, millions have lost their jobs, businesses are on the cusp of distress and investors are experiencing the fastest peak-to-bear market decline in history. While the virus is disrupting our daily life in many ways, there is hope.
- The Fed has cut the Fed Funds Rate by 100 basis points to 0.25%. Additionally, they plan to reintroduce quantitative easing (QE) by buying $500 million in Treasury bonds and $200 billion in mortgage-backed securities. These actions are meant to ease the strains on the global funding markets.
- Congress has also acted by passing a fiscal stimulus bill worth an estimated $2.2 trillion. It includes loan guarantees to small businesses, checks to consumers, suspension of federal loan payments and many other forms of aid to those most impacted. These steps and more will likely limit the damage and set the stage for the recovery.
Until then, keep in mind this isn’t the first time our country has experienced economic distress. The average bear market decline from 1956 to the present is 37% and each was followed by a strong market rally. This bear market is likely no worse than the others seen throughout history, and the economy will rebound just as it has in the past.
The number of virus cases in China and South Korea is declining. It is a little more challenging here at the moment, but if we all do our part in staying quarantined, the return to our normal lives will undoubtedly trigger the beginning of a new market rally.
