7am Saturday is a weekly email I send at 7am every Saturday where I share brief and relevant thoughts on money or investing. Enter your email address below to subscribe:

7am Saturday

March 28, 2020

Good morning!
It was another crazy week that included a big bounce in the stock market, a record number of unemployment claims, and a $2 Trillion economic stimulus package.

Market Update

+ The S&P 500 bounced back this week and posted the best weekly performance since March 2009.
+ The S&P 500 is on pace for the worst month since 2008.
You get to choose the headline because either one works!
+ This week’s rebound in the market was fueled by optimism that the U.S. government spending $2 Trillion on an economic relief package will mitigate the impact of the coronavirus outbreak.
Here’s how the week went for the S&P 500…

  • Monday: -2.93%
  • Tuesday: +9.38%
  • Wednesday: +1.15%
  • Thursday: +6.24%
  • Friday: -3.37%

…overall, the S&P 500 finished this week up +10.20%.
Not a bad week on a stand alone basis. However, we need to put this week’s performance in context with the past 5 or 6 weeks. Until this week we hadn’t had two up days in a row since early February. In other words, the market was way oversold and due for a bounce. The question now is, was the low on Monday the bottom of this bear market, or is there another leg down to come? Only time will tell, but in my opinion we will see another selloff before this bear market is over. There’s just too much bad news to come in the next few weeks. Although the market is already anticipating this bad news what remains is a high degree of uncertainty around the duration of the COVID-19 shutdowns and the extent of the economic impact.

An Update on COVID-19

Let’s take a look at what’s happened in the U.S. over the past week…
Here’s a look at where we were as of last Friday night (3/20/20):

…and now a look at where we are as of Friday evening (3/27/20):

More than 5X the cases in one week!
I’ll reiterate this statement from last week: “Clearly the pandemic is spreading throughout our own country. The economic impact will be felt for months to come.”
Total cases around the world now exceed 550,000 with deaths topping 27,000. It’s very likely we will see more than 400,000 cases in the U.S. by next weekend.
+ What concerns me the most is “the curve”. Here’s a graph showing what the curve looks like for different countries during the first 42 days with more than 100 confirmed cases in that country:

The steepness of the curve is a reflection of how fast the virus spreads. As you can see, it’s not looking good for the U.S. which has the steepest curve on the graph at this point in the cycle.
Things can change quickly, but seeing the number of cases in major metropolitan areas like New York City is a cause for concern. Los Angeles isn’t far behind as models show they could experience a surge similar to what NYC has seen within about 5 days.
This past week, President Trump started to change his tone saying he wants to see us back to work and in churches by Easter (April 12). This doesn’t seem realistic to me. Easter is just two weeks from tomorrow, and I’m guessing we won’t see much flattening of the curve by then. (I hope I’m wrong.) We may have had a better chance if the whole nation came together and committed to social distancing and only allowed essential businesses to remain open.

As I’ve said before, we must take this threat seriously. Do I like shutting businesses down, cancelling events, and sheltering at home? Absolutely not! But, I do want what’s best when it comes to attacking this virus and slowing the impact on our health.
Testing and isolation will remain essential for stopping the spread of the virus. Watch this interview with Bill Gates for more information on why this is so important.

Economic Update

+ The biggest economic news of the week was that 3.3 Million Americans filed for unemployment benefits last week. That number is nearly 5X the prior record in 1982:

One thing you should know about initial (new) jobless claims is that the trend in the number of unemployment filings is inversely related to the direction of the stock market. Check out this chart to see how this worked during 2008 and since then:

In 2008, unemployment peaked at 10% before trending down to a 50-year low of 3.5% just before COVID-19.
So, where is unemployment headed from here? Well I have to believe we will see some more big numbers for jobless claims over the next few weeks. The median estimate for Q2 is around 7%, but it wouldn’t surprise me to see 10% or more unemployment this year.

+ With unemployment rising and businesses shutdown just how hard will the economy decline? Estimates are all over the board as this one is very hard to predict, but some of the most bearish estimates include a quarterly decline in GDP of as much as 25-30%!

Bear Market Brews

This past Thursday, we hosted our first virtual happy hour in a new series called, Bear Market Brews.
​ You can watch the replay here.​
During our live chat we discussed:
1️⃣ The current status of COVID-19
2️⃣ The government intervention we’ve seen from the Fed as well as the new stimulus package approved by the Senate
3️⃣ An economic update including our thoughts on today’s report that 3.3 million workers filed for unemployment last week (a new record!)
4️⃣ Forecasts for this year’s economic output (GDP)
5️⃣ A review of prior bear markets of 30% or more declines in the stock market and what to expect going forward
6️⃣ A review of indicators we are looking to be more confident that this bear market has found the bottom
7️⃣ Tips on things you should do to improve your financial position during this crazy environment
We also spent some time providing answers to some great questions submitted by our listeners. As you can see we covered A LOT! We will be back again next Thursday, April 2nd. Please join us!
More info at the link below ?
​https://hzcapital.com/bmb​

The CARES Act

Today, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act”. The Act makes emergency supplemental appropriations and other changes to help the nation respond to the coronavirus outbreak. I’ll have more details for this next week, but I’ve already attended a webinar covering the changes and it is likely that most Americans will benefit in some way from this economic stimulus package.

Positive News of The Week

One thing I hope to do throughout this pandemic is share some of the positive news I’m hearing. One big letdown has been the lack of effecient COVID-19 testing. Abbott Labs is about to change that. Abbott is unveiling a test that can tell if someone is infected in as little as 5 minutes. The test is small, portable, and can be used in almost any health-care setting. Abbott plans to supply 50K tests a day starting 4/1.

Weekend Links & Resources

+ The Coronavirus (COVID-19) Pandemic & Bear Market Updates – This is worth mentioning again. This page is a curated list of all the client updates our firm has published. This page will continue to be updated throughout the bear market. Bookmark this page and check it often as we intend to frequently communicate our thoughts to current clients and potential clients.
+ COVID-19: How to Exercise Control During These Crazy Times (The Everyday Advisor)
+ Your Weekly COVID-19 Update (The Invested Dads Podcast)

I hope you find some time to unwind and relax this weekend. I’ll take some time to watch some Netflix tonight (hit reply to give me some suggestions) and then tomorrow I’m looking forward to my favorite hour of the week…our online church service. If you don’t have a church, or if your church doesn’t have an online service, then I encourage you to check out CedarCreek. The messages and music the past two weeks have been perfect for the occasion and the online production is excellent!
Have a great weekend,
Adam
↩️ PS – If anytime you get an email from me and you want to share a comment or ask a question, simply hit ‘reply.’ I read every email, and try my best to respond.
? PPS – Thank you for all the feedback on these emails. I’ve had an overwhelming amount of positive replies to my new weekly email. If you’re finding these emails helpful, please forward them to your friends. Or, you can always direct them to 7amSaturday.com to sign up.