Quarterly Commentary – April 2020

What a difference six weeks can make. On February 19, 2020 the Dow Jones Industrial Average (Dow) closed at 29,348.03. Many were thinking that Dow 30,000 was just around the corner. Unemployment stood at or near all-time lows at a rate of only 3.5%. Widely reported was that there were more jobs available than workers. On that very day the first resident from the Life Care Center in Kirkland, WA was taken to Evergreen Hospital and later that person tested positive for the COVID-19 virus. Then it all came tumbling down. Not immediately but over the following 2 weeks a steady stream of patients was taken to Evergreen Hospital and by early March the deaths caused by the virus began to mount.

By February 28, 2020 the Dow was still in a manageable range, down to 25,409 but still in the range of a normal stock market “correction”. (A Correction is when the Dow falls 10%, a Bear Market is a drop of 20% and a Crash would be considered when the Dow falls 30%). More bad news rolled out and it became obvious that COVID-19 was going to have a significant impact on the health/daily lives of all Americans and on March 23, 2020 the Dow closed at 18,591.93 or a decline of 36% from the all-time high achieved just 4 weeks prior. We were officially in stock market Crash territory. At that point there was tremendous FEAR and PANIC that the financial markets would melt down completely and all would be lost. So, what happened next?

Buyers began to move into the stock market and realize that major US companies were now “on sale” meaning their stock could be purchased at 30-40% lower than just a month prior. At this point there was (and remains) a binary question. Would the financial markets regain strength or fail? It really is that simple. Our country and much of the rest of the world is in an economic pause. Most every business is either closed or participating in Social Distancing, (this is a new phrase added to our lexicon and forever linked to the COVID-19 crisis of 2020) schools are closed, restaurants are either closed or changed to take out only and highways are devoid of traffic. Can we go on like this for an extended period? No. It really is that easy. Our Nation cannot run on ¼ speed for a year or years on end. This would lead to not only the collapse of most every business, large and small, but also to the very fabric of our country as tax revenue to local, state and federal government would fall to a trickle and all the guarantees offered by the US government would in effect be worthless. If the government is not collecting enough tax revenue, they would have nothing left to back up their guarantees. That would be the reality of a long-term shutdown.

So, what is reality or better put what is more PROBABLE than not. What is more probable is that Social Distancing will have an impact to “flatten the curve”, scientist will come up with both treatments and ultimately a vaccine and business will re-open. Employment numbers are lagging indicators (what has happened) as opposed to the stock market which is a leading indicator (what people think may/will happen).  As a result, the rate of unemployment can be rising while the stock market is also rising. Take the past 2 weeks as an example as on April 2, 2020 the US Department of Labor forecasted 6.6 million jobless claims were added the week ending March 28 which will be the highest weekly total in history. https://www.dol.gov/ui/data.pdf. On March 27, 2020 the Dow closed at 21,636.78 and today (April 7, 2020) the Dow, after rising 1627.46 (7.73%) is at 23,362 for a gain of 25% off the low of March 23, 2020. Will this continue for the next week, month or quarter? I do not know. But I do believe this.

Things will get better. Recall above, in my belief, this is binary choice. We either get better or we don’t. We cannot indefinitely maintain on a shutdown level. Communities will band together to help in any way they can. Money will be donated to provide meals to first responders and the needy. When a critical need arises people will rush to fill that need. For example, on March 9, 2020 the Puget Sound Blood Center put out a call that Blood Supply was at a critical emergency level and asked for blood donations. Two weeks later, on March 23, 2020, they were able to notify the public that the Blood Supply has stabilized. https://www.bloodworksnw.org/.

Scientists all over the World and very importantly right here in our backyard are working on overdrive to come up with treatments and ultimately a vaccine. Donations are pouring in and the Bill & Melinda Gates Foundation has allocated $125 million dollars to fund this cause. https://www.gatesfoundation.org/TheOptimist/Articles/coronavirus-mark-suzman-therapeutics

Furthermore, on March 27 President Trump signed the CARES Act in to law after a unanimous vote in the Senate followed up by overwhelming support in the House of Representatives. Two key points. One, our Congress can actually work together on behalf of the country and two, this will pump over $2 trillion in to the economy with funds being distributed to individuals, business and all of the States.

So, given that back drop we do believe the financial markets will rebound. How long will it take? Nobody can answer that for sure. All we can do is look at human behavior and how economies and stock markets have rebounded from prior stock market crashes. During the Great Depression the Dow hit an all-time low on July 8, 1932 of 41.22. This was a fall of over 90% from its high on September 3, 1929 of 381.17. https://www.thebalance.com/dow-jones-closing-history-top-highs-and-lows-since-1929-3306174#the-great-depression. On December 30, 1932 the Dow was at 60.26. Well below the high of 1929 but 46% higher than the all-time low. https://www.davemanuel.com/where-did-the-djia-nasdaq-sp500-trade-on.php

I could go on and on with this historic data, but you get the point. Over time stock markets recover from their low points and advance to new highs. Sometimes it takes a decade to fully recover (as in the 1930’s) while in modern market history the recoveries have been far more rapid. Again, no guarantee but rather an analysis of probability.

Where do we go from here? In our opinion stay the course that you have set with some possible course corrections. If you are a Moderate investor, I encourage you to stay that way. However, if you are on the more Aggressive side and this level of volatility causes you concern, lack of sleep, then you need to re-evaluate what your level of equity or stock exposure you really prefer. If you wish to tamp down the level of volatility in your portfolio then a shift to a lower percentage of stocks would make sense. This will have the effect of lowering your gain in up stock markets but lowering the downside movement when the next Correction, Bear Market or Crash occurs.

We believe in the resiliency of the American People. We The People are a force that no one, or anything can conquer. We have shown that time and time again and our faith in each other will move us through this crisis and on to our future prosperity.


Current Data for the Dow Jones Industrial Average found at https://www.morningstar.com/markets historic data before the year 2020 found at the websites noted above. Past performance does not indicate future results. This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed by Kestra Advisory Services, LLC. as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. The Dow Jones Industrial Average is a popular indicator of the stock market based on the average closing prices of 30 active U.S. stocks representative of the overall economy.