So far, arguably the most problematic statistic from this COVID-19 economic shutdown, is the speed and magnitude at which initial jobless claims have been filed.
Previously in over five decades of data, the worst week for jobless claims topped out at around 800,000. Last week we had 3.3 million, and this week we doubled that to nearly 6.7 million. Just under 10 million people have filed initial jobless claims in a two-week period.
It makes the historical jobless claims chart look like a typo, but it’s not:
According to the BLS, over 13 million people work in the food service industry, which is a very impacted area as many restaurants and bars shut down or go on a light take-out and delivery schedule.
Almost 16 million people work in sales, which includes a large number of retail workers such as cashiers and sales associates. Macy’s alone is furloughing the majority of its 125,000 person staff as it temporary closed its Macy’s and Bloomingdales stores, and the same can be said for countless other retailers.
Millions of combined people work in the airline industry, hotel industry, or at casinos or theme parks and other operations that consist of large gatherings that have generally been halted.
And then there are countless gig workers, folks like Uber drivers and other independent contractors, that have lost work as the result of this. Layoffs have also moved up the income chain into highly-paid shale oil workers, engineers and technicians at GE aviation, employees at the computer networking giant Cisco, and many more. American Express hasn’t let any jobs go, but they put a hiring freeze in place.
Investing in a Challenging Environment
The S&P 500, which covers about 80% of the U.S. stock market capitalization and is tracked by the C Fund, has continued in a bear market trend in the past couple weeks:
After the sharpest initial decline from all-time highs in history, the market became technically oversold with deeply negative sentiment, and was due for some sort of reactive bounce. We received that bounce, and now have been grinding lower again. It remains to be seen where it will go from here.
The same pattern has happened with the MSCI EAFE index of international developed market stocks, which the I Fund tracks:
Other than sticking with a diversified portfolio such as a TSP Lifecycle fund, this is a challenging environment for investing. As I wrote about in last week’s piece, bear markets tend to take months to play out, and can have many false “bear market rallies” that suck investors back in: Market Turmoil: Good Plan and a Steady Hand Prevails.
Therefore, investing with a well-defined process is helpful here.
The simplest process is to stick with a diversified and regularly rebalanced portfolio. The argument against this approach is that stock markets have gone 20-30 years without making new highs (including the United States a few times in the past, Europe since 2000, Japan since 1989, and emerging markets since 2007), so this passive approach doesn’t always work.
The counter-argument is that this is why a diversified portfolio of domestic stocks, foreign stocks, and some defensive assets like bonds or precious metals, is important. In the 2000’s decade, emerging markets helped make up for the fact that U.S. stocks didn’t really make new highs after the dotcom bubble.
In the 2010’s decade, U.S. stocks helped make up for the fact that international markets trended sideways for a long period of time. In all decades, defensive assets helped shield some of the downside, and allowed for re-balancing into stocks at market lows.
A more hands-on approach, but still rather simple, is to invest in an asset class when it is above its 200-day or 10-month moving average, or similar measures of positive momentum. This takes the guesswork and emotion out of timing a bear market bottom.
Over the past 25 years, this approach would have helped investors avoid major stock market crashes, but it also gives a number of false signals:
Currently, all three TSP equity funds (the C Fund, I Fund, and S Fund) are below their moving averages, and therefore would be avoided with this particular approach for now.
Whatever approach an investor chooses, the key thing is to at least have an approach; a well-defined plan rather than relying on week-by-week guesswork. It could be passive and diversified, it could be momentum-based, or it could be based on active decisions, but make sure you know your plan.
Lyn Alden is a financial writer and an engineer, and holds a bachelor’s in engineering and a master’s in engineering management, with a focus on financial modeling and resource management. She specializes in analyzing and presenting financial data. Her investment work can be found on LynAlden.com.