A reader suggested that while this pandemic continues, I keep an open diary on this site with frequent short entries focusing (though not exclusively) on investment and the markets. This is the first of these posts.
Markets are less concerned about the virus itself than with the recessionary impact of the lockdowns and quarantines. That perspective points to two considerations:
- Actions by the federal government, and to a lesser extent states and cities, to lessen the recessionary pressure.
- Because the longer the lockdowns and other restraints remain in place, the deeper into recession the U.S. economy will sink and the longer and harder it will be recovering, markets necessarily also consider how long this period of restraint will last.
Washington—that is, the government and the Federal Reserve––has now delivered large (more than two trillion dollars) and well-crafted policies to deal with the recessionary dynamic. While these moves cannot ensure the economy will escape the pain of a recession, they do offer good reason to hope that the future will be less severe than it otherwise might have been. The markets rallied in response, actually in anticipation of this welcome news.
The news on the duration of lockdowns and quarantines is less encouraging. President Trump has given up on his “hope” that the nation could get back to work by Easter, and he extended the advice to keep things shut down until April 30. He may have to extend it further because new Covid-19 cases are multiplying in the U.S.
- The global picture does offer some hope. The tracking system administered by Johns Hopkins University reports that new Covid-19 infections peaked on March 27 at 67,400 and in the following two days fell about 10 percent. But we must keep in mind that this picture of abatement is really tentative. At other times we have seen such improvements only to face a new surge.
- For the U.S., the picture is less encouraging. On March 31, the World Health Organization reported that the nation suffered some 19,332 new infections, nearly five times the number reported on March 27. Yet these figures may not be as bad as they appear. In just the last few days, the country has made considerable headway in testing – not as much as the experts say is needed, but an improvement nonetheless.
Investors should keep in mind that the nation will survive this pandemic, as will most of its businesses. Those who bought equities for the long term (which, as so many of these posts have emphasized, is the only way to buy stocks), should keep that “long term” in mind and hold on for the inevitable recovery. Panic selling now will only deprive you of the opportunity to take part in that recovery. For those who have cash, the present market setbacks presents buying opportunities. But because no one can know when the pandemic and its economic fallout will end, it is not possible to pinpoint the best buy. The smart approach would be to invest in stocks piecemeal, and over time –– perhaps on each major market reverse. Investment professionals call this “dollar cost averaging”.