Jun 19, 2020 4 min read

What is going on in the economy?

We have never experienced anything like the past few months. Unemployment went from the lowest level in 50 years to the highest since the Great Depression in 1929. The essential business classifications that forced many businesses to close favor larger retailers over smaller ones. There often seemed to be no rhyme or reason about who could operate and who couldn’t.

What comes after green? No one knows, including Harrisburg.

Restaurants cannot continue to operate using only 50% of their seating and stay in business. Many small businesses were already struggling, and being forced to close for months only hasten their problems. Whole industries such as airlines, hotels, conventions, parks, movie theaters and many others have lost billions of dollars and may not be able to survive.

Malls that were already struggling have seen more anchors go bankrupt. As they close stores, smaller tenants will use clauses in their leases to vacate properties. What will happen to the mortgages on these properties and the tax revenue generated through local property taxes?

More employees will probably work from home in the future, so there may be less demand for office space. All of the retailers and restaurants that located around these office buildings and shopping centers may see less traffic and sales. Will a large number of college students take a year off because they are concerned they may not get to return to campus?

Many parents are concerned that their schoolchildren may be forced to be vaccinated with drugs that were rushed through the review process. I have heard a number of parents say if that happens, their children will be cyber or home schooled. What does that do to our education system?

When are people going to start asking for a reduced price on their cable bill because there are no live sporting events? Gyms count on having many members who do not use the facilities very often, but keep paying dues. Will that sort of income dry up? The economy has suffered many structural challenges that have not yet been factored in.

Yet through all of this, the stock market crashed quicker than we have ever seen. The first quarter of this year was the worst in history. Yet while we were watching unemployment grow, the stock market has recovered a large part of its losses. Never has a recovery happened so fast.

This week we are seeing some increased volatility, as fears of the virus spreading again appear. Crazy things are happening in the market, as only a few mega companies are really leading the gains. These companies count for a much bigger share of the Standard & Poor’s 500 because it is a weighted index. That means the value of all of a company’s bonds and stock valuation determine its weight on the index.

Hertz was one company that went bankrupt during this crisis. Yet, in an almost-unheard-of move, it is proposing to sell $1 billion in new stock. If Hertz doesn’t reverse its bankruptcy potion, this stock could become worthless.

We will come out of this crisis, but it will take time. There will be setbacks in the recovery – nothing this complicated ever happens perfectly. You have a second chance to reevaluate your market exposure.

If you are young and have sufficient emergency money, the stock market will produce the best long-term gains. The people most at risk are the ones in the retirement red zone. This is the five years right before retirement, and the first five to 10 years afterward. When you move from the accumulation phase of the money cycle to the distribution phase, sequence of risk can wipe out your savings.

We will discuss this more in a future column.

Gary Boatman is a Monessen-based certified financial planner and the author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

To submit columns on financial planning or investing, email Rick Shrum at rshrum@observer-reporter.com.