Digesting the Past, Looking to the Future

April 2, 2020

In the first quarter, we transitioned out of a market that was largely quiet with small daily gains to one that is now characterized by volatility and uncertainty.1

Officially turning the longest-running bull market into bear territory, the novel coronavirus created rippling effects throughout the markets and economy, influencing everything from interest rates, to at-risk industries to consumer behavior and beyond.2

As we make our way into the second quarter, we continue to keep a very close eye on the three key themes that most influenced the first quarter.

1. Impact of the coronavirus: We know we enter the second quarter in a recession. Second-quarter gross domestic product (GDP) is expected to contract between 10% and 20%, levels we have not seen since the Great Depression.3 We also know that we will likely be hearing about more infections and deaths, and more unemployment and economic losses. Markets are also likely well-aware of this. Aiding the economy and markets will be deferred consumption in the third and fourth quarters and a Fed that has been much more proactive than it was in 2008 to 2009. The market awaits a more definitive timetable on a plan to move from virus control to economic recovery.

2. Political clarity: Though most of the volatility experienced thus far can be attributed to the global health pandemic, there is at least some level of political uncertainty with 2020 being an election year. The likely candidates are now known but this will play some role in market volatility and potential future policy as we near the election.

3. Interest rate contagion: We have read about zero or negative interest rates in Japan and Europe for years now. The U.S. had avoided this contagion but zero and negative rates have now hit our shores.4 This is a challenge for bond investors as they look for ways to earn a real return.

While this will pull expected returns of bonds even lower, which will have some effect on expected returns for planning purposes, it may open up opportunities for us as borrowers to refinance debts and lower our interest costs.5 We don’t expect rates to move higher quickly but will watch how the market reacts to the large amount of spending the U.S. has just undertaken.

The first quarter was a whirlwind. If you haven’t already, please connect with your advisor about revisiting your portfolio allocations.


1. Yahoo! Finance (data as of 4/1/20) – S&P 500
2. USA Today (3/11/20) – Dow drops into bear territory for the first time since the financial crisis, as investors fret over coronavirus
3. Marketplace (3/30/20) – How bad will this recession be, and how long will it last?
4. CNBC.com (3/15/20) – Dow drops nearly 3,000 points, as coronavirus collapse continues; worst day since ’87
5. Forbes (3/16/20) – Will the Fed’s sudden cut usher in even lower mortgage rates?

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 9.9 trillion indexed or benchmarked to the index, with indexed assets comprising approximately USD 3.4 trillion of this total. The index includes 500 leading companies and covers approximately 80% of available market capitalization.


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