What is the market going to do next?!? While we can’t tell you what’s next, we can tell you what’s happening currently.
In March we had the largest crash in the stock market in the history of the world. So far, the markets have steadied, and we hope you were able to recoup any losses which came from the crash. The Dow Jones Industrial Average (DJI) in late February was the highest it has ever been over $29,000. Within about 30 days the DJI fell to about $18,500, losing 36% in value! To put this in perspective, March 2009 was the bottom of the market during the “Great Recession” when it reached $6600 in value. It had dropped from $14,000 which ended up being a 52% loss in market value. The difference between the two is during the “Great Recession” it took 4-5 months for this crash in the market to happen or roughly a 10% loss per month. What we just saw was a 36% loss in ONE MONTH!!
Fast forward the tape a bit, the DJI rose over the next month and on June 8th, reaching it’s most recent high at $27,572. From the low this is a 49% gain! Now obviously we hope you skipped out on the down slope but we also hope you had the foresight and liquidity to enjoy the upswing!
Unsure of what is next, so far, the Feds have printed and pumped money into the markets as they did in 2008 with one difference, bond purchases. The Federal Reserve which is given its authority by way of congress is responsible for protecting the dollar and our markets. Thus, they decided the best way to save us this year, was to do what they had done in 2008, except they are now buying corporate debt which has never happened in the history of the US. Mainly because a government buying out private companies is a pretty socialist activity but it seems we haven’t really cared as long as the Fed keeps its promise to protect the dollar and our markets, right? In total, the Fed pumped $2.3 trillion into the market and corporate debt compared to $800 billion in 2009!
The bad thing is this has all been done by printing money and taking on the national debt. This initially by economic principals, will cause deflation, and the ultimately inflation. The latter of the two is the worst, inflation is by definition, the loss of purchasing power. Remember grandma saying, I remember when a loaf of bread was 10 cents!?! Well, that’s inflation, the devaluation of our currency. As a positive what the federal reserve did recently, has been mirrored across the globe! For us, this is a good thing considering the Dollar is the world reserve currency and will prop up our currency value a bit.
From a business standpoint, inflation means material costs will increase, and thus price increases may be needed in the near future. From a market standpoint, we will all find out where to go from here and while right now the market looks all shiny, do not be tempted by fool’s gold! Many experts are projecting more volatility to come. We are now starting to see the true effects of the job losses which have been experienced government assistance slowing. Defaults of debt payments by individuals are starting to increase heavily. PPP money is starting to phase out. As business owners, to look into the future we need to again start finding ways to become more efficient and beat the financial environment we are in. Then again, we hope they’re all wrong…