Today, March 23rd, the market was up significantly. Enough even to come back up to the levels we saw last Thursday. I believe there were two main reasons behind this. The first reason was that the expected size of the promised stimulus plan has increased. Originally it was supposed to be between $800 billion and $1 trillion. Now the numbers being tossed around are $1.8 trillion to $2.2 trillion. While this is cause for a more positive outlook, you must keep in mind the relative size of the plan to the size of the economy. Our economy ended last year at an annual pace of almost $22 trillion for GDP. According to the St Louis Fed, we could see an annualized rate of drop to GDP for the 2nd quarter of 50%. At that pace, a $2 trillion stimulus package would keep us afloat for a month or two assuming the money was well spent and not sent into political agendas. At this point, we don’t have details on the plan, nor a finalized plan.
I believe the second reason the market went up today was the President’s assurances that he wanted to reopen the country in a week or two. While it is absolutely true that he does want to reopen the economy, that doesn’t mean he will. His job is to be a cheerleader for the American people and keep the hope that this is almost over alive, whether or not that is true. He keeps saying he wants to reopen, but the doctors won’t let him. That’s politics. He’s trying to shift the economic blame to the doctors. In two weeks, he will still want to open, but sadly he has to take the doctors’ advice and keep it closed. Whatever the reason he said this, many people will believe we are opening in a week or two, but in my mind it’s just like the airlines. Your flight isn’t 4 hours late, it’s one hour late. An hour later, it’s delayed another hour, and so on until the 4 hours have passed and you kept hoping the whole time you were about to board. When we really reopen the economy depends on how many people are sick and how many are still getting sick. I have not seen much evidence that will be in a week or two. Another way we could reopen is if we felt enough economic pain to decide as a country that dollars are more important than lives. I believe we are quite a ways away from that point right now.
In terms of the fundamentals of the economy, nothing has changed since yesterday. Yes, the market went up, but we’ve seen weeks of huge up and down swings recently. I’m not a scientist, so I can’t say whether this virus will start to lessen tomorrow or in 5 months, but unless we get more details on a great stimulus plan, or a credible plan for the end of this economic closure, there is still too much uncertainty out there to say the stock market is well priced or overpriced.
We’ll keep watching the situation closely.
Alexander D. Parrs, CFA, CFS, ChFC, CFP®, CASL