The aftermath (and perpetuation of) the COVID-19 pandemic has had some anticipatable outcomes, such as increased unemployment, economic downturn, and an increase of general public fear in what the future may hold. However, a lot of the data reflect a slightly different story, with some of the numbers suggesting the opposite of what many would have otherwise expected. Let’s take a look at it a little further.
S&P500 and NASDAQ Historic Highs
The US economy reported the worst Q2 GDP numbers in history, a negative 32.9% annual decline. However, the S&P 500 is up a whopping 5.3% YTD as of Friday, August 21, 2020. On top of that, the benchmark’s pre-pandemic all-time high of 3,386.15 was achieved on February 19, 2020. On August 21, 2020, the S&P500 closed at 3,397.24, slightly above this former record high. This means that not only is the benchmark positive on the year, but it’s picking up where it had left off from its all-time high before the economic downturn. The same is true for the NASDAQ, which is up over 23% on the year and about 15% above its February 2020 previous high.
People Are Saving — A Lot
Part of the reasoning behind this rebound stems from consumer spending habits and changes in attitude on personal savings. Disposable personal income rose 42.1% and personal savings rose 25.7% in the second quarter of 2020. People did not spend, leading to such a sharp annual decline in GDP; instead, they saved. So, in reality, the GDP number is not representative of a market recession, but instead a result of an intentional pause due to COVID-19 containment efforts and a mentality of the public to hoard cash in case the situation worsens.
Legislation That’s Helping Some…and More May Come
On top of this, the CARES Act allows for up to $100,000 to be withdrawn from a retirement plan without penalty. Typically, there is a fee to follow through with such a transaction, however, this charge has been waived, allowing individuals to tap into their future wealth in order to keep themselves and their families afloat in the short-term. Additionally, there may be another round of stimulus checks sent out to Americans. The legislation is currently being held up in Congress, although the president did recently push through Executive Order some temporary measures, including extending unemployment, albeit a smaller amount per week than what Congress had authorized earlier in the year.
Our Commitment to Keep Our Clients Updated
We’ll continue to monitor the situation regarding a potential additional stimulus package and its impact on the economy. There is speculation that Congress will pass a bill in September when they return from recess. However, there is still a wide gap between the amount of money each party would like to spend and how to spend it (from $1 trillion for Republicans to more than $3 trillion for Democrats).
If you have any questions or would like to talk through your financial situation relating to the pandemic or otherwise, we’re always here for you. We work closely with individuals, businesses and other financial professionals. Simply visit our website at FinDec.com to learn more.
Tolen Teigen is Chief Investment Officer of Fred M. Lee Corp d/b/a Financial Decisions and Financial Decisions, Inc.
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Financial Decisions, Inc and Fred Lee Corp d/b/a Financial Decisions are related entities. Fred Lee Corp d/b/a Financial Decisions is not a registered investment adviser and does not provide investment advice.