The U.S. economy entered a recession in February, according to the National Bureau of Economy Research. A recession is defined as a significant decline in economic activity spread across the economy lasting more than a few months. The coronavirus pandemic spurred record unemployment numbers, halted different industries, decreased consumer confidence and sent the stock market spiraling in March. We’re breaking down what investors need to know about this specific recession, what recovery looks like and how you can protect your money until then.
Recovery Will Look Like a “U”
Rather than recovery looking like a sharp “V” that illustrates a steep decline and a speedy incline or an L-shape that portrays a continuous weakening of the economy, we believe economic recovery will take a U-shape. Recovery will slowly move in a positive direction. Data is slowly improving since March as weekly jobless claims slowed and manufacturing results have started to rebound after historic lows. Consumer spending also plays a role in the slow economic recovery. In April, the personal savings rate hit an unprecedented 33%, meaning people are saving more than they are spending, contributing to the slow U-shaped prediction.
The Stock Market Will Stay Volatile
Although we don’t anticipate experiencing lows similar to those in March, the stock market will remain volatile. Things like the stimulus checks millions of Americans received and states starting to reopen are positive forces on the stock market. The election year and concern over the trade deal between the U.S. and China will keep the stock market on its toes. Through all the volatility, it is possible to see a 10-15% correction from our current levels. Markets average a correction about once every 12 months, so a pullback would be fairly normal.
Understand Recessions Are Normal
It’s important to know that recessions are a normal part of the business cycle. What makes our current recession unusual is the simultaneous impact COVID-19 has had on both supply and demand in the economy. Social distancing, although it helped to stop the spread of the illness, halted consumer spending, decreasing demand. At the same time, businesses shut their doors over public health concerns, which impacted the supply chain. As businesses reopen, many investors are looking beyond the current poor data and focusing on economic recovery.
If you are concerned about how market volatility will impact your retirement savings, make sure you are meeting with a financial professional to rebalance your portfolio. At Zephyrus Financial Services, we do this automatically for each client. We work to capitalize on current opportunities and protect from future major market swings.
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