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Client Letter | April 9, 2020

With the equity markets closed tomorrow due to Good Friday, the weekly review is coming a day earlier. As we begin the Easter weekend, I wondered where the story of the Easter Bunny came from. According to the Easter Bunny came to America most likely with German immigrants.

“According to some sources, the Easter Bunny first arrived in America in the 1700s with German immigrants who settled in Pennsylvania and transported their tradition of an egg-laying hare called “Osterhase” or “Oschter Haws.” Their children made nests in which this creature could lay its colored eggs. Eventually, the custom spread across the U.S. and the fabled rabbit’s Easter morning deliveries expanded to include chocolate and other types of candy and gifts, while decorated baskets replaced nests. Additionally, children often left out carrots for the bunny in case he got hungry from all his hopping.”

Fortunately, at our house, Katie saved the plastic eggs we used from last year. Since she bought some candy a month ago, I will be filling and hiding the eggs for Francis. Even if only for a few minutes, as Francis searches for eggs, life will seem back to normal as I watch his joy in finding the hidden eggs. This will be another memorable event that I will cherish.

Throughout your life, what is your most memorable holiday or event?

Moving on to the topic of the markets, as measured by the S&P 500, we had the best one-week gain since 1974, with the S&P 500 increasing by approximately 12.1%. Much of this increase could be attributable to seemingly good news about a sooner than expected peak in COVID-19 in the United States. While the increase in equity valuations are positive, we still believe there is still a great deal unknown about the effect of COVID-19 on the markets so we would not be surprised if we did see some downward pressure in the coming weeks with more info about COVID-19 as well as companies reporting their earnings.

As we adapt to the changes in our daily lives, the stock markets have had to adapt to the new economic realities as well. The longest economic expansion in our nation’s history has ended as the US economy has entered a recession. This economic contraction is quite unique—it’s the first one brought on mainly by governments, as they closed non-essential businesses and initiated social distancing restrictions to limit the spread of the virus. It also may prove to be unique by potentially being one of the shortest recessions in history, depending on how quickly the virus can be contained.

What is not unique is the challenge for investors in navigating the bear market that’s accompanying this recession. Historically, the best time for many investors to buy stocks has been at the trough, or low point, of a recession, although the trough usually has been evident only in hindsight. Since 1970, bear market low points have occurred within an average of three weeks of the biggest increase in weekly jobless claims, something that we hope came last week. In previous recessions since WWII, stocks bottomed an average of about five months before the end of the recession, as stocks sensed improved upcoming economic data (source: FactSet). No one knows for sure when stocks will bottom this time but looking at these data points suggests we may be getting close.

We’ve received some better news in the battle against COVID-19 over the past few days. China states they have contained its outbreak, and its economy appears to be restarting. In Wuhan, the epicenter of the China outbreak, the lockdown is being lifted. In Italy, the epicenter of the European outbreak, a peak in new cases likely was reached last week, and the government is starting to plan for a restart of its economy. The epicenter of the US outbreak, New York, is starting to see a slowdown in new cases. This fight isn’t over, and we cannot fully discount another wave of new cases, but the other side of this crisis is coming into view. The stock market also has started to sense that we’re nearing an inflection point. Over the prior week we lowered exposure to global bonds and will look to use these dollars to slightly increase equity exposure during any periods of downward pressure.

It is being reported that people may start receiving stimulus dollars from the CARES Act next week. People who have provided the IRS with their direct deposit information in their 2018 or 2019 tax returns should review their bank activity next week to see if you receive the dollars. If you have not provided direct deposit information to the IRS, your check will be mailed out over the coming months. When and if received, you are free to use the money for whatever you would like. You may use it to pay for necessities or you could add it to savings.

May you have an enjoyable weekend and as always please do not hesitate to call us, even if just to say “Hi”.


Chris Zeches, CFP®
Managing Partner