As the COVID-19 pandemic continues to create uncertainty in our lives, we will work hard to provide you with timely insights on economic conditions. Thank you for your continued confidence in Nicolet.
The capital markets continue to digest the negative impact that COVID-19 and social distancing are having on the economy. We have seen the sharpest, fastest bear market in history, with the S&P 500 Equity Index down 35.2% from its closing high on February 19 to its intraday low on March 23. That downturn was immediately followed by a 17% relief rally, the strongest three-day move higher since the 1930s.
We want to highlight the importance of staying invested in the market and not trying to time the market. Just missing out on a few of the market’s best days can have a devastating impact on returns. As we just witnessed, the best days often occur near the worst days.
The recession conversation has quickly changed from probabilities to now magnitude and duration. Economists are now debating how deep this recession will be and how long will it likely last.
Will this recession be like other event-driven recessions, one in which an event negatively impacts supply or demand or both, something like a war or natural disaster? Encouragingly, these types of recessions usually follow a “V” shaped pattern, a deep but short-lived recession with a strong recovery. Or, will this recession be like other financial recessions, one in which excess builds in the system and the path is more of a “U” shaped pattern and takes longer to recover?
The government appears to be committed to ensuring that the COVID-19 outbreak remains a health crisis event and doesn’t turn into a financial crisis. The Federal Reserve has acted quicker and with greater scale than in 2008, including lowering interest rates to zero, unlimited quantitative easing, and emergency liquidity facilities.
Washington recently passed the largest economic relief package in our nation’s history called the CARES Act. The Act provides one-time stimulus checks, expands unemployment insurance coverage, provides opportunities to access retirement plan funds without penalties, and waives RMD payments for 2020. Business relief includes new loan programs, relaxed net operating loss rules, and certain payroll tax liabilities that can be deferred.
These measures alone cannot prevent the economy from falling into a recession. Nor can they prevent the unemployment rate from soaring in the weeks ahead. However, it could provide a bridge to support households, businesses, and communities until the current health crisis abates. The path forward will not be easy nor without setbacks, but we are cautiously optimistic and encouraged by reports, like this one from the Milken Institute, that there are now 104 potential COVID-19 treatments and vaccines in the research pipeline.
We continue to maintain our disciplined long-term approach and are prepared for a range of potential outcomes. If you would like to discuss your account in more detail, please contact us at your convenience.
Nicolet Wealth Management
Investment and insurance products:
Are Not FDIC Insured
May Lose Value
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Are Not Deposits
Are Not Guaranteed by Any Federal Government Entity
Are Not a Condition to Any Banking Service or Activity
Nicolet Wealth Management is a brand name that refers to Nicolet National Bank and certain of its departments and affiliates that provide investment advisory, trust, retirement planning and insurance services.
Nicolet Advisory Services, LLC, is an investment adviser, registered with the U.S. Securities and Exchange Commission, and an affiliate of Nicolet National Bank. Nicolet Advisory Services, LLC recommends the brokerage and custodial services of TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is not affiliated in any way with Nicolet National Bank or its affiliated companies.
Trust services are offered through Nicolet National Bank, a national bank with trust powers. Trust services utilizes SEI Private Trust Company (SPTC) as its custody provider. SPTC is not affiliated in any way with Nicolet National Bank or its affiliated companies.