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COVID-19 investing update

2020-03-23, Michael Thompson

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COVID-19 investing update

Since our last article COVID-19 has spread quickly across the world, mostly in line with expert predictions. Extreme measures have been enacted to slow the spread of the disease, hopefully enough to prevent overruns at most hospitals. Unfortunately, these safety measures come with a large economic expense. Many investors are feeling this pain.

A year ago, we estimated a 50% chance of recession in 2020. Incorporating the fallout of COVID-19 it's almost certain we are in a global recession now. We appear to be in the midst of a large, sharp decline in economic activity. Investing experts predict GDP will drop in the coming quarter by a percentage not seen since at least the 1950s. However, many of the same experts also predict this could be one of the shortest recessions in history. With appropriate fiscal and monetary policy, we could come out of this in Q3 this year! Forward-looking investment markets like the NASDAQ and S&P 500 could recover even sooner.

As usual, we don't recommend straying far from your long-term investing plan. The markets have priced in most of what we discussed above. For those that have errored on the conservative side, holding excess cash or treasuries, now is obviously a better time to fix this (buy equities) compared to several weeks ago. However, there's always the risk of significant further downside - no one knows where the markets will go in the short-term. Before going all-in on equities now, remember there's nothing preventing a new crisis from occurring in the middle of an existing crisis. Oil companies just experienced this: the Saudi-Russia oil price war started in the midst of reduced oil demand caused by COVID-19. No one can consistently tell you tomorrow's news today - particularly in the world of investments.

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