Without question, the financial markets saw a volatile first quarter of 2020 – with sharp drops from late February through March due to the spread of the coronavirus. However, the global health pandemic has not been the only factor affecting equity markets so far this year.
In early March, Saudi Arabia effectively abandoned OPEC-mandated production and began to dramatically discount oil prices and increase oil production. An oil price war between Saudi Arabia and Russia resulted in oil futures falling nearly 25% in a single day. With the United States now being the largest producer of oil in the world, it affects both earnings and the U.S. economy when energy firms must reduce production and payroll.
By mid-March, significant social distancing measures were being implemented across the country, which resulted in stocks dropping even further. Obviously, the economic impact of these measures has been considerable – especially for the travel, leisure, beverage and restaurant industries. At the start of 2020, no one thought a recession was likely this year, but with so many small businesses struggling to survive, the chances have certainly increased.
There has been rapid and unprecedented support by the U.S. government and the Federal Reserve to stimulate the economy. More than $2 trillion in stimulus plans have been enacted to help households and businesses stay afloat until the coronavirus peaks and begins to decline. The Fed cut interest rates to zero percent and implemented measures to provide short-term cash for corporations and sufficient capital for the broader banking system. These were strong moves that positively impacted the markets.
Despite an unclear timeline to resume normal life and uncertainty about how much farther the markets and economy will fall before we get there, the U.S. economy is the most flexible and resilient in the world. When we started this new decade – with optimistic outlooks of ‘2020 clarity’ and a productive first quarter – no one could have foreseen the scope, spread or impact of the coronavirus. However, having a financial plan is important for this specific purpose – to ensure you’re maximizing opportunities, minimizing risks and have a clear course of action when the unexpected happens.