Market Perspective 4/4/2020

With each time that we write to you, we do so within the backdrop of a health pandemic that will come with great cost in human life and emotional hardships. What we speak of below is not forgetting this; it is simply doing what we must always do when challenges occur--face them.

As we enter April, it is hard to believe that the COVID-19 emerged a relatively short time ago. It is not an understatement that the impact, a health crisis that is driving the world economy into a recession, is without precedent in our life experiences. A recession is technically defined as two-quarters of negative Gross Domestic Product (GDP) growth in a row. We now expect the second quarter, and possibly the third will experience negative GDP growth.

A recession would end the longest economic expansion (a period without a recession) in US history. Recessions can result in business contraction, falling demand, job losses, slow or no wage growth, to name a few impacts. We are going to experience many, if not, all of these. What varies from recession to recession is the length and severity.

As challenging as the 2008-09 recession was, the lessons learned during the Great Recession are helping to guide some of the fiscal and monetary policy actions being taken today. In essence, we are drawing from a playbook that we believe will get us through this crisis more successfully. Additionally, these lessons will be applied against an economy that was fairly robust before the pandemic.

Having this recession’s genesis being an event that has an undetermined conclusion can be unnerving. Yet, if we can step back and acknowledge that every historical event that has caused a recession has a common denominator--they have an end. This most recent seems to point to the potential of treatments and the development of a vaccine. In hindsight, each recession has also brought positive aspects that are hard to predict.

Economic cycles, while at the very least unpleasant, help shape the economy as we emerge out of a recession.  No doubt that when this ends, we will have repercussions such as higher federal debt and potential inflationary pressure, but as always, we will do what we do with all challenges--face them.

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