In the worst week for markets since October of 2008, the S&P 500 fell over 14% and broke down through its December 2018 lows. Markets have come to the realization that we are most likely in the early innings of a recession and are attempting to gauge the depths to which we may be headed. Extreme volatility again defined this week's market much as it has over the last month. While there were brief moments of order, we continue to struggle to find a semblance of calm.
Coronavirus has brought much of the U.S. economy to a stand still to combat its spread, yet we continue to see case numbers and deaths accelerate. With the economy rapidly deteriorating, certain financial markets have been experiencing liquidity crunches prompting the Federal Reserve to step in with unprecedented levels of stimulus. At the same time, U.S. policymakers have been working nearly around the clock to unload fiscal stimulus in an attempt to shore up workers and industries that have been impacted by the virus. We are in trying times indeed and the big guns have been called in.
The big guns are certainly necessary with jobless claims starting to rise quickly and major U.S. metro areas going into lock down. With a slew of workers in the travel, leisure, and hospitality being laid off, jobless claims rose to over 280K. Economic pain is quickly spreading beyond these sectors and claims are expected to move much higher. Early estimates indicate that jobless claims could be as high as 1-2 million by next week. With the virus still spreading exponentially, it's difficult to say that an end is in sight. Companies are taking these notions seriously and have been quick to restrain spending, right size their labor forces, cancel buybacks, and in a few cases suspend dividends. Hard as it is to believe, a company as strong as Boeing was may now be dependent upon a government bailout to continue their operations. This has all happened very quickly and investors have had little chance to catch their breath and consider the long-term.
If there is one thing we can say for certain, it is that the economy, markets, industries, and individual companies could look quite different on the other side of this. As in all crisis, there will be winners and losers. Some industries like technology and health care are well positioned to take advantage of changes that may come. Others that appear overextended like energy, may have a much darker future. Still, even within industries that are stressed, there will be companies that survive and become stronger as weaker players are pushed out. As this unfolds, we should be looking closely for those that will survive and thrive.
This report was prepared by Donaldson Capital Management, LLC, a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Information in these materials are from sources Donaldson Capital Management, LLC deems reliable, however we do not attest to their accuracy.
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S&P 500: Standard & Poor’s (S&P) 500 Index. The S&P 500 Index is an unmanaged, capitalization-weighted index designed to measure the performance of the broad U.S. economy through changes in the aggregate market value of 500 stocks representing all major industries.