Our Mid-Year Economic Update
By Karl Anvik, BSc, MA, CIM®, CFP®
How are you feeling about 2020 so far? Not what you expected, eh? The world as we know it has been turned upside down by five letters and a number: COVID-19. While the coronavirus pandemic is at its core a health issue, the downstream effects of it on other aspects of our society have been significant, perhaps the greatest being economic. As we reach the mid-year mark of 2020, let’s look at what’s ailing the economy, most of which can trace its roots back to COVID-19.
Stock Market Developments
The year started off strong, with the S&P 500 reaching all-time highs and peaking on February 19. Then it all fell apart. In a little over a month, the index fell 34%, bottoming out on March 23. It’s been a bumpy ride, but the market has climbed out of the hole it was in and gained back 36% (as of May 27) from that low. (1)
Now, it may seem as if the S&P 500 has made up for all of its losses if it lost 34% and then gained back 36%. However, that is not the case because each percentage is based on its relative high or low. The index peaked at 3,386.15 points before falling 34% to 2,237.40. That loss was 1,148.75 points. Growth of 36% from the low point only accounts for 798.73 points, which means that the index overall is still down 10% from February’s high.
In addition to stock prices improving, volatility is calming down as well. In mid-March, things were swinging around so fiercely that the S&P 500 achieved double-digit movement in single days. Things have calmed down a lot since then, but volatility is still higher than it was pre-crisis. Things just seem calm now compared to the craziness of what has been called the longest March ever. (2)
Daunting Unemployment Numbers
Perhaps the area that has been impacted the most by the COVID-19 containment efforts is employment. It’s hard to keep a job when companies are shutting down and people aren’t allowed out of their homes. The official unemployment rate for April is 13%, more than double what it was in February. (3) The true number might be even higher, as this number does not capture the true picture because it doesn’t include those not looking for work or the 2.5 million people who worked less than half of their usual hours due to the coronavirus. (4)
Federal Reserve & Government Intervention
The U.S. Federal Reserve stepped up early on in the pandemic to slash rates to near zero. And of course, we’ve all heard of the $2 trillion CARES Act Congress passed to help individuals and businesses and keep the economy chugging along. In Canada, the government passed a bill to provide $52 billion in aid to individuals and businesses and $55 in tax deferrals, including a freeze on student loan repayments, loans for commercial landlords, business loans, and an increase to the Canada Child Benefit. (5)(6)
The Economy’s Struggles
As we begin to ease out of lockdown and restrictions are being loosened, there has been an uptick in economic activity, though not enough to stop the economy from contracting. The leisure and hospitality industries have been devastated (7) while the service sector is still struggling under social distancing guidelines. (8) Factory activity is still down (9) and agricultural conditions are deteriorating. (10) Overall, pessimism reigns supreme over the economy even while some Federal Reserve policymakers believe we are either at or near the bottom and are expecting a rebound in the second half of the year. (11) The global economy is continuing to decline, but at a slower pace than it did in April, (12) which seems to confirm their predictions.
How Should You Respond?
As you can see, this year has been anything but normal so far, and there are more than likely going to be even more plot twists as we enter the summer and fall. While the global economy seems to be gasping for breath, it is not the end of the world. We may have some hard months and years ahead of us, but it isn’t the first time we’ve faced challenges like this.
While our economic woes may not be historically new, they very well could be new for you. In difficult times like these, it is helpful to have a trusted advisor that you can turn to for financial guidance and support. If you don’t want to go through this economic crisis alone, our team at Northfront Financial Inc. is here for you. Give us a call at 403-571-8960 or email firstname.lastname@example.org so we can have a no-obligation conversation about where you are and how we may be able to help.
About Northfront Financial
Northfront Financial is a boutique full-service financial planning firm serving individuals and families in Calgary, Alberta. The firm specializes in pension-style investing so that the quality of your retirement is not dependent on the stock market. As one of Calgary’s leading wealth management teams with highly skilled, certified team members, they help create financial capacity for their clients by deeply understanding their needs, opportunities, and strengths through their unique Northfront Process™. To learn more about Northfront Financial and how they can help you, visit their website and schedule a complimentary appointment.