U.S. stocks closed out their worst quarter since the depths of the financial crisis, a stunning blow for the market that few investors would have anticipated at the start of the year. At quarter-end, the Standard & Poor’s 500-stock index was down 20% this year and 24% from the all-time high it set at February 19. The Dow Jones Industrial Average has declined 23% since its January start and is 26% off the record high it set in February.
Just months ago, money managers were optimistic that the global economy would stage a modest rebound. The U.S. and China had appeared to make progress on a trade agreement and central banks around the world looked poised to keep interest rates steady for the foreseeable future. Then the coronavirus pandemic hit.
A record 3.3 million Americans applied for unemployment benefits last week, as companies large and small began cutting staff as business dried up from closed or curtailed operations in a nationwide effort to slow the spread of the deadly virus. The nation’s unemployment rate was 3.5% in February, a half-century low, but that has likely risen already to 5.5%. The nation hasn’t seen that level of unemployment since 2015.
Last week saw the biggest jump in new jobless claims in history. Both the scale of the layoffs and the speed at which they are happening are unprecedented. During the Great Recession, for example, the worst week for jobless claims was 665,000. Last week the nation saw five times that amount.
A lot of workers are not allowed to apply for unemployment benefits, meaning the true number of layoffs so far due to the coronavirus is likely far higher than 3.3 million. Self-employed workers, gig workers, undocumented workers, students, and people who worked fewer than six months last year are typically not eligible to apply for unemployment insurance in most states.
Many economists say this is the beginning of a massive spike in unemployment. March numbers came out Friday.
Glimmers of hope
The greatest indicator of the start of market stability is a sign that officials have control over the spread of the virus that’s caused life to screech to a halt. If leaders can “flatten the curve” of new infections — that is, spread them out over time to keep health resources from being overrun — the economy could benefit.
Dr. Fauci, Director of National Institute for Allergy and Infectious Disease (NIAID), provided some optimism that mitigation tactics like social distancing are having an impact: “We’re starting to see glimmers that they are actually having a dampening effect,” he said recently. There was also good news this week from Abbott Labs on a five-minute test for the COVID-19 virus and from Johnson & Johnson on a possible vaccine.
China has reported a slight rebound in activity as its economy began to thaw out, having been the first to be frozen. This pattern will repeat itself in the U.S. and other global economies, which will first experience a severe downturn while fighting the COVID-19 pandemic but then start to recover when the virus passes.
Outlook and New York Life
We should expect the economic news and the trajectory of the virus will get worse before we turn the corner; virus modeling suggests April will unfortunately bring a significant increase in infections and deaths even if we are successful in flattening the curve.
As a result, the economy is expected to severely contract and unemployment to sharply rise. Market volatility will persist in both the equity and fixed income markets as we move into April and likely for some time beyond the peak of the virus.
In the face of these challenging times, New York Life remains a beacon of strength. We continue to have a fortress balance sheet and a robust capital position with a cushion above and beyond what we need to weather this storm. We maintain an all-weather investment portfolio and a diversified portfolio of businesses, all of which contribute to our unparalleled financial strength. The General Account portfolio continues to be well diversified – by asset class, sectors and individual issuers. While we are not immune from the economic fallout from fighting the COVID-19 pandemic, we believe our investment approach will serve our policy holders well during these uncertain times.
Tony Malloy is Executive Vice President and Chief Investment Officer of New York Life, responsible for the management of the company's assets. Tony is also the head of the firm’s global asset management business, which manages over $575 billion in fixed income, equity and alternative investment strategies for insurance, institutional and retail clients. He is a member of New York Life’s Executive Management Committee and serves on its Risk Steering Committee. Tony earned a BA in English and Economics from Middlebury College and an MBA in Finance from New York University. He serves on the board of trustees of Good Shepherd Services.
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