It's a question we hear most and to answer most directly, we don't know. Nobody does. All we can do is give our thoughts based on the data we are seeing.
In reality, these are truly unprecedented times and we are ultimately planners, not prognosticators. We strive to make sure our clients' investments are in line with their goals and risk tolerance. Please reach out if there is more planning to be done to protect short to mid term cash needs or to make sure that short term volatility does not derail your long term holdings.
Now, you likely didn't click through to read that, albeit important, disclaimer, so here's our best guess.
In short, a near term pullback seems likely but the 6 to 12 month outcome looks positive.
Historically when there is a strong rally, you tend to get a drawdown at some point of about 9%(1) for the S&P 500 index. Given the speed and severity of this recent recession, it could be worse as news develops on the virus, economic re-openings, or the election.
Before jumping ship; however, please keep reading for the good news.
- We have seen historically significant measures taken by the Fed and governments around the world to support the economy. The US committed almost 2.5 times as much fiscal stimulus for this crisis as compared to the 2008 Great Recession as a percentage of GDP(1) with more to potentially come. Some countries around the world have done even more relative to their GDPs, with Germany committing almost 10 times as much as 2008(1) .
- While we were concerned about the economy slowing down prior to the pandemic, the fundamentals were still supportive of modest continued growth. We are seeing many of those fundamentals beginning to recover.
- We know it is almost impossible to time the market. We may see a fairly painful short term pull back, but at what potential longer term cost? Historically, we have seen that momentum similar to the past 2 months tends to stay in motion when zooming out. Based on the chart below, 100% of the time investors who stayed the course during times like right now were rewarded with positive returns over the next 6 and 12 months:
None of this is to say the road to a durable recovery will be smooth. Economic data does not make the fact that hundreds of thousands of lives have been lost with many jobs and businesses permanently eliminated feel any better. We have posted support resources for this crisis before that we are happy to relay should you or a loved one need help. So above all, please, please stay safe.
If you wish to discuss anything above, we are available via phone (301) 299-1763 or email firstname.lastname@example.org.
(1) ClearBridge Investments Anatomy of a Recession Presentation as of 6/30/2020. Past performance is not guarantee of future results. Investors cannot invest directly in an index. US stimulus as a % of GDP was 12.1% this crisis as of 6/30/2020 compared to 4.9% in 2008 and Germany was 33% compared to 3.5% respectively.