Via Nova’s Perspective:
The COVID-19 pandemic spread fear, sickness and death throughout the world in an incredibly short time, straining health resources, and prompting global leaders to limit travel, close businesses, and impose “social distancing” to slow the spread of the virus. (We prefer the term “physical distancing” as a more accurate and constructive way to describe the approach.) Health professionals and companies are working around the clock for treatments and vaccines. Many are calling the crisis a “Black Swan Event,” an unpredictable incident with extreme consequences. The health crisis was further exacerbated by an oil pricing war between Russia and Saudi Arabia which caused a collapse in energy prices. Economic forecasters project a sharp, but hopefully brief, decline in the domestic and global economies. We prefer the term “suppression” over recession, since the restrictive conditions are largely self-imposed. Sales and profits are falling for a large swath of industries forcing layoffs of millions of workers. Stock prices, which were hitting record highs in mid-February, plunged more than 25% ending the record-setting 11-year bull market in equities.
However, the response to the COVID-19 crisis has been extremely fast by historic standards. The Federal Reserve cut interest rates to near zero and began an unprecedented effort to maintain financial market liquidity and provide loans directly to companies. On the fiscal side, Congress, in a bipartisan fashion, quickly passed record stimulus/support bills totaling over $2.3 trillion (nearly 10% of GDP) in three phases. While not perfect, the bills meet our criteria of being timely, targeted and temporary. We believe these large and coordinated efforts will offset much of economic displacement currently affecting the country. Other governments are following suit. On the medical front, treatments and vaccines are already being developed and should be in clinical trials by the end of summer.
These are challenging times for us all, but the evidence suggests we are collectively rising to the occasion to support those in need, and we believe this terrible episode will be the rearview mirror by the end of the year. That said, the COVID-19 virus has exposed some vulnerabilities in our current approach to healthcare, business and even routine personal interaction. Going forward, “business as usual” could have a somewhat different look and feel.
Key dates in the battle against COVID-19:
Condensed from Wall Street Journal and other sources.
Jan. 10: China reports first coronavirus death.
Jan. 23: China locks down Wuhan and three other cities.
Jan. 30: Commerce Dept. reports 2.1% fourth quarter GDP growth.
Feb. 17: Apple tells investors it won’t meet revenue projections due to the virus.
Feb. 19: S&P 500 hits its 13th record high of 2020.
Feb. 21: COVID-19 cases rise sharply in South Korea. A safe-haven rush lifts gold prices and pushes down bond yields. The 10-year Treasury yield drops below 1.5%.
Feb. 24: The number of cases outside China surges.
Feb. 25: The CDC warns of a wider virus spread in the U.S. New cases rise sharply in Italy, Iran and South Korea. The IMF downgrades global growth forecast.
Feb. 26: V.P. Mike Pence put in charge of virus response. Microsoft warns of supply chain disruptions.
Feb. 27: Stocks fall into correction territory (-10%).
Mar. 3: U.S. reports first deaths from virus. Fed cuts short term rates by half percentage point. Other central banks pledge cooperation.
Mar. 5: Seattle shutters schools.
Mar. 6: PHASE 1 – President Trump signs $8.3 billion emergency spending bill that provides funding for more virus test kits, small business loan subsidies and extra funding for CDC, FDA, NIH, SBA and USAID. HOWEVER, OPEC and Russia fail to reach agreement on oil production cuts pushing oil prices down sharply.
Mar. 9: Italy places entire country under quarantine. Oil prices plunge by 25% to $31/barrel. S&P 500 falls 7% at the open triggering circuit breaker stabilization mechanism for the first time in 23 years. The 10-year Treasury yield drops to a record low 0.50% and gold prices hit a seven-year high.
Mar. 10: President Trump says White House considering payroll tax cut and help for hourly workers.
Mar. 11: The Dow’s 11-year bull market ends. The WHO declares COVID-19 a global pandemic. President Trump announces 30-day ban on some travel from Europe. The NBA suspends its season after a player tested positive for the virus. Basketball, hockey, baseball, and golf, among other sports, cancel games.
Mar. 12: Fed announces it will make vast sums of short-term loans available to purchase Treasury securities. New York, Connecticut and New Jersey impose restrictions on public gatherings.
Mar. 13: Federal Reserve slashes its policy rate to a range of 0%-0.25% and announces intention to restart quantitative easing (QE) buying $700 billion of Treasury and mortgage-backed securities.
Mar. 16: Stocks have worst day since Black Monday in 1987. Airlines ask for $50 billion in federal assistance.
Mar. 17: Federal Reserve says it will start making loans to U.S. companies to ease funding strains. President Trump backs a $1 trillion stimulus plan that includes sending checks directly to Americans.
Mar. 18: Phase 2 – Congress passes a second stimulus package estimated at $100 billion to provide free virus testing, two weeks of paid sick leave, increased funding for Medicare and food security programs. Oil prices fall to an 18-year low of $20/barrel. President Trump invokes Defense Protection Act. Fed says it will launch a new lending facility to backstop money-market mutual funds.
Mar. 19: After hovering at historically low levels, initial claims for jobless benefits rise sharply in the week ended March 14. Federal Reserve announces it will partner with the Treasury to provide trillions of dollars of loans to nonfinancial firms as “lender of last resort.”
Mar. 20: U.S. extends individual tax filing deadline from April 15 to July 15 to ease cash flow burdens.
Mar. 24: The Dow soared 11% to its biggest one-day percentage gain since 1933, after U.S. lawmakers said they were close to a $2 trillion deal for an economic rescue package, injecting optimism following the biggest selloff since the financial crisis. Summer Olympics in Japan is postponed. HOWEVER, China announces plans to lift the mass quarantine in Hubei province where the pandemic first emerged.
Mar. 25: Former Fed Chairman Ben Bernanke, an expert on the Great Depression, asserts that the current environment is closer to a major snowstorm in its impact rather than those conditions present during the Great Depression. He expects a “sharp, short” recession and a “fairly quick rebound” ahead.
Mar. 27: Phase 3 – President Trump signs the CARES Act, a record $2.2 trillion stimulus bill and nearly 10% of GDP. The bill expands unemployment insurance coverage, sends $1,200 checks to individuals ($2,400 for couples) under a specific income, provides short-term loans for small businesses, and support for airlines and other industries.
Mar 28: Members of Congress hint at additional stimulus if needed.
Mar 30: Johnson & Johnson announced it identified a lead COVID-19 vaccine candidate and plans to begin phase one trials no later than September. It plans to have small batches of vaccine available by January.