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It’s official. We just closed out the worst quarter for stocks worldwide since the depths of the Great Financial Crisis.
We knew a bear market was bound to happen sooner or later. The longest-running bull market in history couldn’t last forever.
The severity of the selloff when the bear did swipe was as unexpected as the coronavirus that triggered it.
The numbers are finally in:
The MSCI All Country World Index plunged roughly 21% in Q1 2020. That was the global benchmark’s worst quarter since Q4 2008. But even those dismal figures masked how some regions of the globe performed worse.
But of course, those are just market figures, tabulating wealth lost in stocks on Wall Street. The “real economy” costs on Main Street, impacting your everyday life, are much worse than 1987. In fact, they’re on track to be worse than the Great Depression. This is why I see more pain ahead.
I’m not alone. The St. Louis Fed released a more-detailed version of the potential “worst case” scenario for the U.S. economy I wrote about last week.
Their conclusion is that some 47 million Americans could lose their jobs. This would drive the unemployment rate to a staggering 32.1%. The steep rise in unemployment would be due in part to the fact that 67 million Americans currently work in jobs that are at a higher risk in this particular, virus-driven downturn.
And even more “optimistic” projections are anything but. Goldman Sachs just projected the economy will shrink at an astonishing annualized rate of 34% in Q2, far worse than its previous 24% projection. Unemployment would jump to 15%, much higher than an earlier 9% estimate.
To be sure, Goldman expects a sizable rebound later in the year as the virus outbreak ebbs. And $6 trillion (and counting) in aggressive monetary and fiscal stimulus will head off some of the shorter-term damage.
That’s because it’s designed to give companies money to tide them over for several weeks or a couple of months, avoiding some furloughs and layoffs.
But just in the past few days, retailers like Macy’s (M, Rated “D+”), Gap (GPS, Rated “C-”), L Brands (LB, Rated “D+”), and Kohl’s (KSS, Rated “C-”) said they would furlough hundreds of thousands of employees combined. And only some workers will receive partial pay or health benefits for a period of time.
But moves like that will no doubt result in even more dismal jobless claims figures in the coming weeks as furloughs end and turn to full-on unemployment. Jobless filings soared to a record 3.3 million last week and are estimated to hit 2.7 million this week.
Bottom line? We’ve seen a short-term bounce thanks to policy moves that injected additional liquidity into markets. But rather than add exposure into that bounce, I’d use it to get your portfolio into better shape for when it ends.
How so? Here are three ways:
1) Use the bounce to dump risky, high-yield bonds and don’t look back. Move to quality.
2) If you didn’t have any gold or Treasuries in your portfolio, use the short-term pullbacks in assets like those to get on board. This will add some much-needed diversification.
3) If you are completely unhedged, use stock market bounces to add things like inverse ETFs or put options at better prices. They can provide downside protection that offsets losses elsewhere in your portfolio.
These kinds of “Safe Money” strategies worked out very well for our readers and subscribers who followed them in the last two major downturns. With another unfolding here, there’s a very strong likelihood they will again.
And as always, if you want more specific guidance and recommendations than these general guidelines, you can get them in my Safe Money Report. Just click here or call my team at 1-877-934-7778 to get on board.
Until next time,
Mike Larson
