The U.S. just experienced the six worst weekly jobless claims in history – prior to 2020, the worst reading was 695,000 in 1982. The last six weeks have ranged between 3.3 and 6.8 million jobs lost each week (exceeding the prior record by multiples). First quarter GDP declined 4.8% which was the worst since the financial crisis of 2008 and only a fraction of the quarter included the time after government shutdowns of large parts of the economy. Second quarter GDP is expected to be record breakingly bad.
Surely, this was an environment for horrible stock market performance? And…..the S&P 500 had its best monthly performance since 1987 with a gain of over 12% in April which followed strong returns at the end of March. The S&P 500 is up 18% over the past 20 days.
The point of this brief note is that we just experienced a great example of the fallacy of the perfectly understandable urge to get out of the stock market during times of turmoil and get back in when things look better. Doing that would have been a disaster – you would have locked in the large losses through mid-March and missed out on one of the most dramatic rebounds in stock market history (in terms of the magnitude and the short period of time it occurred). Then you are stuck with the unenviable question of what to do now – get back in and risk declines or continue to wait and risk being on the sidelines if markets continue up.
Douglas M. Lynch, CPA, CFA, CFP