IRA Financial’s Adam Bergman welcomes Dan Segal, Director of Investments at Benchmark Financial, to discuss the equity markets and how the economy has been affected by COVID-19.
As everyone is well aware, the equity markets are down across the country. The global economy has seen its worse days in a long time. All thanks to the COVID-19 (also known as coronavirus) pandemic. This financial crisis is something we haven’t see in the country in nearly a century. In his latest podcast, Mr. Bergman discusses the equity markets in general and looks towards the future. We are grateful to be joined by Dan Segal from Benchmark Financial.
What’s Up with the Equity Markets?
Obviously, the markets are down. Period. After pushing record highs to near 30,000, the Dow Jones bottomed out at around 18,500 when the pandemic started closing everything down. As of May 5, the Dow sits at 23,883. So, it seems we’ve seen the worst of this collapse. The NASDAQ and S&P 500 faced similar drops. Other assets classes like real estate and, especially, oil, have plummeted. In fact, the joke is that toilet paper is worth more than oil. With everyone staying home, the demand for oil is nil.
We’ve learned from earlier crisis, such as the Great Depression and the Dot Com Bubble. The economy will bounce back. The markets will bounce back, as evident by the record highs we saw earlier this year. Future contracts are still seeing decent results on specified commodities. Eventually, demand for these commodities will return to normal.
Further, interest rates have been cut drastically. This is to help rejuvenate the economy. Inflation remains to be low, as it has over the last couple of decades. Borrowing money right now is a really powerful tool. If you are a business in need of help, taking a loan now will be worth more. Also, the low interest rate will have an impact on mortgages and those looking to refinance their home.
The Government is Helping
As you probably know, the government has enacted the CARES Act. This is a $2 TRILLION stimulus package aimed at helping all sectors of the country. Is it enough? The hope is that it should be enough. The reality is we’re not sure. If this lock-down continues for weeks, or even months, in big cities, the impact remains to be seen.
In the end, it comes down to the consumer. That’s what drives our economy and the equity markets. Is the average consumer going to return to business as usual when this is over? Will more people decide to save their money and not spend freely. Again, this is something no one has the answer to yet.
The government is essentially printing money to bail out the entire country. Obviously, this is not good for the economy. If they keep doing that, and it’s not paid back, guess what – the value of the dollar will plummet. Therefore, the way that money is getting paid back is with higher taxes in the future. Now may be the time to pay taxes (such as a Roth conversion) and look into investing in undervalued asset classes. Of course, this up to you and your financial advisor to figure out!
Where Should You Put Your Money?
We must preface this by saying we are not financial advisors. Any thoughts given are opinions and are for education purposes only. First, let’s talk about what will take the most time to come back, which is travel and leisure. Even when this is over, people will be wary to travel for pleasure. Large gatherings, like concerts and sporting events, may not see great numbers for a long time. Do you want to take a cruise anytime soon or visit a foreign country?
On the opposite end of the spectrum is technology. Turn on the news and you’ll see ads for Zoom, Google Teams and similar online platforms. Schools are essentially online-only for the rest of the academic year. Many businesses who can telecommute are doing just that. The competition is fierce to be the next big thing. The landscape will be forever changed due to COVID-19 and technology will be at the forefront.
Manufacturing needs to come back to the United States. Again, this is thanks to technology. More and more robotics are being used, keeping manufacturing costs lower. No longer do companies need to look overseas for manufacturing. Lastly, infrastructure needs to be improved across the country. Therefore, anything related to that may be worth looking into.
Final Thoughts
We will get through this, though all of our lives have changed forever. There is hope in the equity markets and the economy seems to be back on the rise. More and more states are looking at reopening businesses on a limited basis. However, it’s important to pay attention to guidelines, including social distancing and the use of masks and gloves. Thanks for listening, and stay healthy!
Again, a big thanks to Dan Segal. Be sure to check out Benchmark Financial’s website at www.benchmarkfinancial.info. If you have any questions, feel free to contact us and be sure to check out our SoundCloud page for more podcasts!
