In today’s Steady Investor, we look at key factors that we believe are currently impacting the market and what could be next for the markets such as:
Job Losses are Massive, But There is an Untold Story in the Numbers – Many readers have likely seen the dismal unemployment numbers: some 10 million initial jobless claims in just two weeks time. Looking at the last seven recessions (from 1973 onward), it has taken an average of 27 weeks to reach 10 million claims. The idea that “this could be worse than the Great Depression” is peppered throughout the media. But there is an untold story in these numbers: about two-thirds of job losses have come from hospitality, accommodation, food services, retail trade and other service-sector jobs. Those who can work remotely – typically in higher-income jobs in tech, finance, management, professional services – saw little change to payrolls in March. The implication here, in our view, is that the lion’s share of layoffs are in industries that could resume operations immediately when lockdowns and restrictions are lifted. Many of these layoffs also included furloughed employees just waiting to be allowed to return to work. Many U.S. companies have cited the fiscal stimulus – and the extra $600 a week of unemployment payments for up to four months – as the reason they furlough or lay off staff. By some studies, overall personal income could actually rise despite the US losing millions of jobs. In a significant number of cases, those receiving unemployment benefits plus the direct-payment check (helicopter money) come from low-wage low-income households, which taken together could add up to more than what they were paid previously in wages.1
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See Why You Should Avoid Market Timing in the Midst of a Crisis
Far too often, investors fall into the trap of trying to buy “at just the right time,” or selling stocks in the midst of a crisis when emotions are running high.
There is one big problem with market timing — study after study shows that the average investor is a poor market timer. In many cases, investors allow emotions and media noise to get the best of them, selling in and out of the market at the wrong times.
Our guide, “How Market Timing Can Affect Your Retirement Plan1” seeks to explain these behavioral traps and offers potential solutions. If you have $500,000 or more to invest and want to learn how you may be able to avoid these mistakes today, click on the link below to get your free copy:
Download Zacks Guide, “How Market Timing Can Affect Your Retirement Plan.”
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The Fed Keeps Getting Bigger and Doing More – The Federal Reserve’s monetary stimulus in response to the global pandemic was already unprecedented in size, scale, and speed. This week it (somehow) got even bigger. In a statement on Monday, April 6th, the Fed announced it would be establishing a new facility designed specifically to help businesses cover payroll expenses and other essential costs, with loans that can even be forgiven outright if businesses maintain the size of their workforce. Banks have been lobbying the government to purchase loans from the banks that originate them, much like other government-backed entities (Fannie Mae and Freddie Mac) purchase mortgages that are pooled together and traded as securities. The Small Business Administration already guarantees these payroll loans, but with the Fed stepping in there will be a wall of liquidity available to buy the loans. There are signs the credit markets are already beginning to stabilize in the wake of Fed action. Large-cap companies like Oracle and CVS Health Corp. have borrowed money at a record pace, and in all some $104 billion of investment-grade bonds (a record) were sold last week – pointing to strong demand. The previous record for investment-grade bonds was made the previous week, at $73 billion. Mortgage rates have also come down and even companies with higher credit risk, like Carnival Cruises, have been able to access the debt markets to raise cash.3
Small Signs of Hope – There is a lot of bad news and negative headlines out there, and in our view, it is likely to get worse in the coming weeks. But we did manage do find some good news amidst all of the uncertainty, tied to one of the most iconic American companies ever founded: Nike. According to CEO John Donahoe, when many of Nike’s stores closed in China in February, demand soared online with digital sales rising 36% across the globe. Nike’s finance chief likened the surge in digital orders to what Nike typically experiences during peak holiday season. Today, as China slowly tiptoes back to economic normalcy, Nike has re-opened roughly 80% of the 7,000 stores in China, including stores in Wuhan – the original epicenter of the crisis. Nike is also starting to see positive momentum in South Korea and Japan, two countries where closures early in the crisis impacted in-store sales. The takeaway: over time, as we gain control of the virus and the threat to public health starts to fade, business can come back. But even if that takes time, companies with a strong e-commerce platform can still find ways to grow.4
In the midst of a crisis like this, it can be easy to get
swept into the negative headlines that saturate the news. When emotions are
running high, many investors fall into the trap of trying to buy “at just the
right time,” or selling stocks in the midst of a crisis out of fear. Both of
these impulses are likely to lead to more failures than successes over time.
Instead, we recommend focusing on the long-term view and sticking to your
course.
But before making any big decisions, check out our
guide, “How Market Timing Can Affect Your Retirement Plan.”5
This guide seeks to explain emotional and
behavioral traps that investors can fall prey to and offers potential solutions
to common mistakes that many self-managed investors make.
If you have $500,000 or more to invest, and want
to learn how you may be able to avoid these mistakes today, get your free copy
by clicking on the link below:
Disclosure