Market Update

Stocks on Wall Street were heading for their sharpest daily drop today since early April.

Financial Markets around the world dropped about 6%.

Shares of airlines, hotels and other businesses that have rallied recently amid optimism over the lifting of pandemic lockdowns fell sharply.

Oil prices also tumbled and shares of energy companies were lower.

But let’s put today’s decline in perspective. First of all it’s not unexpected, this comes after a significant market rebound over the last 2 month. A breather after that kind of run is not unusual and a more downbeat assessment of the state of the economy from the Federal Reserve on Wednesday seemed to provide the trigger. This market rebounded so far, so fast — as if all the issues related to the pandemic were behind us. So any data to counter that view was bound to hit the markets and make them react. A ‘V’ shaped recovery just doesn’t make any sense. Of course we will fly again, people will go on cruises and stay in hotels again. But these companies will not just go back to normal, they have to invest to accommodate many new regulations and requests before their operations and profitability will be anywhere near pre Covid-19.

After all that positive news and optimism it was overdue for markets to re-focus on reality. While unemployment will be decreasing over time, the numbers are still very high. Despite government support, many businesses will not make it and there will be a significant increase in foreclosures.

The opening of economies will see Covid-19 cases increase and we will have to deal with that appropriately. The next few days could be challenging in the markets but even with more volatility in the forecast, markets will eventually stabilize. In fact markets haven’t really been that out of control since Covid-19 started.

Media coverage sure makes it look more dramatic at times but personally I think that the markets have been reacting like expected. They have clearly overreacted on the downturn in March because of fear and then have overreacted on the recent upswing but overreaction to events has become the nature of the markets. So, the current volatility and some more down days are just part of the recovery.

Stay safe and healthy.