One of the most striking things that I’ve noticed recently is how the stock market has performed in the face of some very, very ugly economic news. How so? After stocks dropped sharply over the course of a month (they peaked in late February), they’ve since regained much of their losses.
At the same time, more than 30 million jobs have been lost during March and April, once stay-at-home orders were implemented. To put this in perspective, that is slightly larger than the population of Texas, which is the second largest state in the country.
This has caused the unemployment rate to leap from 50-year lows of 3.5%, up to levels approaching 20%, which haven’t been seen since the Great Depression (unemployment peaked at 24.9% in 1933). The next worst economic period was 2009 where unemployment peaked at 10.1%, so for most everyone this is the highest level of unemployment they’ve seen in their lifetime.
The caveat is that the overwhelming majority of job losses reported to the government during April were intended as temporary layoffs, but the bigger question is how many will become permanent.
With stay-at-home orders forcing the closure of non-essential businesses, it’s easy to see how businesses that operate in-person (i.e. restaurants, retail or hospitality) would temporarily layoff workers so that they could receive unemployment benefits. On the other hand, many salaried workers (with the exception of healthcare) have continued to work from home during this period yet job losses have occurred there as well.
Within my core audience of tech professionals, those who work at companies that sell to other companies (i.e. enterprise software) have fared relatively well when compared to those who sell to highly affected industries.
In Boston, TripAdvisor recently laid off 25% of its workforce (900 people) while Toast, which sells restaurant software, eliminated 50% of its staff (1,500 people). Each of these layoffs might infer that the restaurant and hospitality sectors aren’t anticipating a rapid recovery, nor that consumers would return to normal activity and spending habits in the near term.
Nonetheless, the stock market appears to indicate the opposite, which is that the removal of stay-at-home orders will result in a rapid, near complete return to normal activity. There is, though, a silver lining in this disconnect between the real economy and the stock market. In fact, it’s a pretty big one, which is this…
It’s very clear that we’re in a bad recession, and a rebounding stock market provides the opportunity to implement a strategy to grow and protect your money while markets remain high.
If you have 5 minutes in between Netflix episodes, or you need a break from work, I encourage you to read 10 Signs You Need a Second Opinion.
Stay safe, and talk soon.
This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, physicians, and those seeking financial planning services.