Farmers Trust Sees Potential for Quick Rebound

CANFIELD, Ohio – While the COVID-19 pandemic has sent financial markets into turmoil and the social distancing restrictions put in place to slow the spread of the virus have cast a dark cloud over the U.S. and world economy, the financial investment experts at Farmers Trust Co. see the potential for a swift rebound on the horizon. 

“Our thesis is that when the number of new cases begins to diminish and we receive the ‘all clear’ signal from health officials, we will see a quick rebound in the economy and the financial markets. The shelter-in-place or stay-at-home orders have created a pent-up demand in consumers that once unleashed will be met with supply side constraints,”  said John D. Stewart, chief investment officer for Farmers Trust, in a statement.

“On the other hand, if businesses remain closed for longer than we expect, or a reopening triggers a rebound in new cases of the virus, the recovery in markets may lie further out into the future,” he said.

Stewart added that as the government takes steps to move the economy away from a recession with a fiscal stimulus and the Federal Reserve cuts interest rates to zero, inflation is likely the medium-term outcome of these circumstances. 

A review of the first quarter’s market recap shows the S&P 500 declined approximately 36% in one month from an intraday peak of 3393.75 on Feb. 19 to the intraday low of 2174 on March 23. The S&P ended the quarter with a decline of 19.6%.  Large-cap growth stocks continue to outperform large-cap value stocks with the S&P 500 Growth Index down 14.5% year-to-date and the S&P 500 down 25.34%. Small-cap stocks were down 30.61% for the first quarter of 2020 and mid-cap stocks were down 29.7% over the same time period. 

The decline in international stocks was roughly in line with the U.S. market, down 22.72% as measured by the MSCI EAFE Index, while emerging markets fell 23.57% in the same period as measured by the MSCI Emerging Markets Index. 

“While the daily volatility of the market will last until we emerge from this pandemic, a strong rebound is likely in the latter half of 2020. We’ll look at foreign countries that have already gone through the pandemic cycle as a template as to how and when economic activity recovers,” Stewart said. 

Source: Farmers Trust Co.

Published by The Business Journal, Youngstown, Ohio.