A Case for Leaning In to This Current Market and Economic Storm

By Dean Bosco, Principal, CliftonLarsonAllen Wealth Advisors, LLC

Key insights

  • Revisit your personal financial plan with your advisor. If you don’t have a plan or it’s woefully outdated, talk to your financial advisor about creating one.
  • Historically the stock market has recovered well — even before the economy has recovered.

“May you live in interesting times” is an English expression that purports to be a translation of a traditional Chinese curse. While seemingly a blessing, the expression is normally used ironically; life is better in “uninteresting times” of peace and tranquility than in “interesting” ones, which are usually times of trouble.

In many ways, it feels like the world as we know it has forever changed, with social distancing, sheltering in place, and a global economy in violent free fall. The markets took a nose dive 34% from February 19 to March 23, driving right past correction and bear market territory and smack into a statistical recession (Morningstar). That was followed by the largest U.S. government stimulus package in history, topping $2 trillion with Congress seeking billions more trying desperately to stop the country’s economic bleeding. That doesn’t mean there aren’t reasons for hope.

A look to the past

To put this into perspective, on October 9, 2007, the Dow hit its pre-recession high and closed at 14,164.53. By March 5, 2009, it had dropped more than 50% to 6,594.44 (Morningstar). Although it wasn’t the greatest percentage decline in history, it was vicious.

The stock market fell 90% during the Great Depression (Morningstar). But that took almost four years. The 2008 crash took 18 months. The American Recovery and Retirement Act of 2009, enacted and signed into law by President Obama in February 2009 during what is now known as the Great Recession, was only $787 billion (later revised to $831 billion between 2009 and 2019).

Let’s take a look at what we know from history about the top 1% and what we purport to be historical market truths:

  • The markets are forward looking.
  • History provides guidance, not answers.
  • The socioeconomic reality of Wall Street versus Main Street.

Forward-looking markets

The cascade of selling seems to be over. Those who wanted out are out, and now the markets have factored in the variables around the flattening the COVID-19 infection rate curve, the impact on the overall economy, and how long it may take us to get back to pre-coronavirus economic levels.

Equity market volatility has been a fairly common occurrence over the years. Meanwhile, the U.S. stock market (as represented by the S&P 500 Index) has weathered a number of negative events in the past four decades and posted double-digit annual returns.

Previous episodes of panic-driven selling of equities have caused investors to miss out of the market’s strongest days, lessening returns over the long term.

If the recent performance has any long-term relevance, we have potentially seen the bottom. With all the prior uncertainty considered and factored in, the markets are moving toward recovery, even though the economic and human toll has not yet turned the corner and flattened out.

History provides guidance, not answers

During undergraduate and graduate school (if you were studying finance and economics like I was), you learned that a recession must last a minimum of six months to “qualify,” according to most economic scholars. A bull or bear market need only rise or fall 20% in either direction from its latest high or low with no time constraints tied to it, in order to qualify.

There’s an old saying about bull and bear markets: bull markets go up like an escalator and bear markets fall like an elevator — or in the case of the COVID-19 pandemic crisis, more like an elevator with its cables cut! That said, it only took 11 trading days for the markets to climb out of bear territory at the end of March, which is a circumstance we still find ourselves in at the time this article was written.

Historically, the stock market has recovered well before the economy has, so whether we have flattened the curve, in pandemic parlance, depends on how you look at things — whether it’s from a Wall Street or Main Street point of view. Another way of looking at it is this: your portfolio will most likely recover before many people are gainfully employed again.

The point is, statistics are a helpful guide, but they only take us so far. Depending on the index you’re looking at, time period, and how many different measuring sticks you use, you could get a different outcome.

The U.S. has never been in this situation in modern history, so while past downturns offer the only guide as to what might be yet to come, the truth is that no one really knows. Unlike Black Monday in 1987, the Tech Bubble of 2000, Sept. 11, 2001, and the real estate crash of 2008, the current economic meltdown is not man-made, but has been caused by a global pandemic.

The socioeconomic reality of inequality during a crisis

Inequality didn’t cause the coronavirus crisis. But it is making the crisis much worse, having created an economy in which many Americans are struggling to get by and are vulnerable to any interruption of work or income and any illness.

Business owners, investors, and corporations who have access to professional legal, tax, and financial advisors typically not only recover more quickly financially in times like these, but are more often the ones who benefit most from an “economic crisis.”

View a chart showing how the initial stimulus bill was to be allocated by industry >>

Take the second-largest piece of the CARES Act, the $377 billion Payroll Protection Plan (PPP) loan program. On its face, the PPP was established to help small business owners get quick and easy access to cash to keep their employees paid and their business expenses current during this time of sheltering in place.

However, the loan process was set up on a first-come, first-served basis. The unintended consequence of this process has been (in large part) that those who have access to and can afford professional legal, tax, and financial advice have been able to more easily navigate the process quicker and more effectively than those who were left to their own devices.

Fortis Fortuna Adiuvat; Fortune favors the bold

For investors, this is the time to lean in and be courageous and bold. Right now, we are experiencing a once-in-a-decade opportunity to grow personal wealth. My advice? Revisit your personal financial plan with your advisor. If you don’t have a plan or it’s woefully outdated, talk to your financial advisor about creating one.

A professionally constructed plan for your family can do two things during a financial crisis:

  • Provides you with the “value of knowing” that what you are currently doing is keeping you on the right path, despite what is going on in the markets and the economy. Or, it may help you determine that you need to make some adjustments and identify the best timing for making them to get back on track.
  • Allows you to dictate to the market what, if any, changes need to be made to your portfolio, rather than having current market conditions dictate what you need to do with your investment portfolio. Rely on your professional trusted advisors, use history as your guide, and rely on your financial plan to dictate what, if any, changes you need to make.

Could this be an opportunity to consider what your portfolio could look like in 12 or 24 months if you decide to lean in and go against the herd and invest idle cash sitting on the sidelines now? Storms come and storms go (whatever form they take, man-made or natural disaster). They wreak havoc for a season and then there’s light and sunny skies on the other side. Years from now, what will your story be of how you road out the current market and economic storm?

Lean in and be courageous, you might find it suits you.

How we can help

As you evaluate your financial plan, take time to consider the opportunities that may be available, even during a crisis. CLA’s wealth advisory professionals are ready to help you understand your options based on your goals and circumstances.