Coronavirus vs. the housing market crisis: How history can help investors now
In April, Unemployment numbers were at 14.7%, the largest number since WWII, with more job losses to have followed in May. But the stock market is still bouncing back. What is the explanation for this? and will things be as bad as it was during the 2008 market crisis? It’s important to remember that the stock market operates on a forward-looking basis. Advisors Eric Oh and Cameron Jalbert discuss what’s happening, and how investors can best prepare.
How is coronavirus continuing to affect consumers?
Newly confirmed cases of the coronavirus are seemingly on the decline right now - a few weeks ago, in the U.S., we were at an average of 30,000 new cases per day. As of mid-May (change to currently), we are seeing closer to 20,000 new cases per day. While coronavirus updates are top-of-mind for many investors, it’s vital to continue to focus on long-term strategies for investments. As always, having a diversified portfolio will help in most situations, but especially now. The reason for this is that you don’t want to be in a situation where you constantly have to react to what’s happening. So, while the markets have certainly been volatile as of late, a diversified portfolio helps to stabilize your investments.
What does the price-earnings ratio have to do with it?
Price-to-earnings is a way for us to gauge where we think the stock market is valued over a period of time. Because of COVID-19, earnings projections have been slashed dramatically, which affects stock valuations – Because of this, stocks will look fairly expensive until earnings recover (uncertainty is very high). Some companies have chosen not to project earnings, because they’re not certain what will happen and how it will affect the bottom line.
Currently, stocks are actually being traded at levels not seen since the .com era, with the big difference being that there was much more optimism in the early 2000s than there is right now. Consumer confidence is fairly low right now. While no one has a crystal ball, there is a reasonable expectation that the market will recover, if the virus doesn’t hit us with a second wave: we’ve already seen federal aid come through and the U.S. is going through reopening phases around the country. If the virus cases continue to decline through the summer and by the end of the year, the expectation is that the economy will start to stabilize.
What can investors do right now?
While we understand that everyone’s situation is different, we recommend looking out a little farther than the next 6-12 months. In the short-term, there are a lot of risks to consider and market volatility is always a factor. As always, we strongly recommend that investors think critically about short-term moves, as reacting emotionally to what’s happening in the markets now may not be in your best interest in the long run. If you have any questions or are considering changes to your portfolio, we are available to help.
It’s also good to remember that over the past decade, we have seen financial downturns for many different reasons. Right now, it’s hard to consider that - or even remember it - given the constant updates and financial hardships that many in the U.S. and globally are facing. But the good news is that the Fed is continuing to aid support which should help provide the liquidity that capital markets need.
How does this differ from the 2008 financial crisis?
The events of 2008 were driven by a subprime mortgage crisis that turned into a financial crisis. Right now, banks are better capitalized and are willing to work with their borrowers: borrowers can defer payments until later on, which provides some breathing room and alleviates some of the major concern for many households.
How do you recommend investors stay safe and healthy during this time?
During times like these, a little perspective goes a long way. Many of us are experiencing a pandemic for the first time in our lives – but if history shows us anything, it’s that we will make it through even though things remain scary and uncertain. With treatments and vaccines being aggressively being pursued, we have hope that the long-term economic impact will be one of gradual recovery.
Please remember to take a break from the news cycle and that you shouldn’t constantly check your portfolio performance. Take some time to take care of yourselves, whether that means exercising or sticking to routines that work for you. If you have any questions or concerns, please contact us. We are available via phone or teleconferencing at your convenience.
The Team at Chatterton & Associates
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed.