The near-daily bombardment of facts and figures is staggering:
- Over 3 million Covid-19 cases worldwide
- More than 1 million in the US alone
- More than 60,000 Americans have died
- Initial jobless claims surpass 30 million since mid-March
- US GDP contracted by 4.8% in the first quarter
And those are just some of last week's stats. But here's another one: April was a heck of a month for the stock market, with the Dow and the S&P 500 both logging their best monthly performance since January 1987.
Even while Americans are reeling from the impact of the coronavirus pandemic, markets have been looking to the future with solid returns in April. The Dow Jones Industrial Average rose 11.1%, the S&P 500 gained 12.7% and the Nasdaq composite rose 5.4% for the month, its best performance since June 2000.
Last week's GDP report showed that the economy shrank by -4.8% in the first quarter (see below for additional details). And next quarter's contraction is expected to be the worst in modern history. A whole host of other data, from manufacturing output to retail spending, have plummeted. This is why the Fed is "using its full range of tools" and Congress has passed a variety of stimulus measures (see last week's Market Digest for a full description of stimulus programs).
Although we'd all prefer for the stars to align in order to feel comfortable investing, markets simply don't wait for conditions to be perfect. US equity indexes are up roughly 30% from their mid-March lows. Of course we can't overstate the importance of a single month; volatility will continue and there will be many more negative economic data points reported in the months ahead. However, the reality is that markets are forward-looking even when investors are not.
While it's challenging to do so in the middle of a crisis, it's important to focus on longer time horizons. Though the cause of this downturn is unique, recessions and bear markets are a natural and unavoidable part of investing. Recent swings in the market - both the plunge we saw in March and the subsequent rally in April - are very difficult, if not impossible to predict. Trying to time when to exit (and when to return to) the equity markets is generally a losing bet. Staying invested matters because history tells us that once a crisis subsides, subsequent economic expansions and bull markets not only last significantly longer, but are the reason investors are able to achieve their financial goals.