Stocks Fall After Grim Jobs Numbers

U.S. stocks ended lower Friday, capping a volatile week of swings both higher and lower, as investors reckoned with the increasing evidence of the COVID-19 pandemic’s economic toll. The large-cap focused Dow Jones Industrial Average closed roughly 1.7% lower Friday, leaving it down almost 29% from its peak in mid-February. The broader S&P 500® Index was down about 1.5%, and nearly 27% from its February peak.

The declines came after economic data revealed how the efforts to contain the COVID-19 pandemic have ravaged the economy. Labor Department data released Friday showed that the U.S. economy lost 701,000 jobs in the first half of March, ending a record 113-month run of job creation. That came after reports that some 10 million people had filed for unemployment in the second half of the monthat a time when the number of reported cases is still growing.

“Stocks are unlikely to experience a sustained rebound until the pace of new COVID-19 cases begins to slow and/or a viable treatment is approved,” says Schwab Chief Investment Strategist Liz Ann Sonders. “Markets likely need some idea of when shutdowns and stay-at-home orders will be lifted—until then, volatility is likely to remain elevated.”

What investors can do

1. Resist the urge to sell based solely on recent market movements. Selling stocks when markets drop can make temporary losses permanent. Staying the course, while difficult emotionally, may be healthier for your portfolio. This doesn’t mean you should hold on blindly, but we suggest taking into account an investment’s future prospects and the role it plays in your portfolio, rather than being guided by short-term market movements.

“If you don’t need the money for a few years, and your investments are consistent with a longer-term financial plan, then your best course of action may be no action,” says Kathy Jones, Chief Fixed Income Strategist for the Schwab Center for Financial Research.

2. Take your personal circumstances into account. For the average investor, the best course of action depends on personal circumstances, Kathy says.

For example, how soon will you need the money in your investment account? If you need money in the next few weeks and months, then you may need to sell some assets to raise cash. The goal is to do so in a way that minimizes the long-term damage to your portfolio, Kathy says. If you have some investments that have done well, you might want to take some capital gains. If you have investments that are down, consider selling them for a loss that you can use to offset some taxes.

If you’re uncomfortable with market swings, you may want to cut back on some riskier investments and move that money to Treasuries or cash to reduce volatility, Kathy says.

3. Rebalance your portfolio as needed. Market changes can skew your allocation from its original target. Over time, assets that have gained in value will account for more of your portfolio, while those that have declined will account for less. Rebalancing means selling some of your outperformers and moving the proceeds to positions that have become underweight. It’s a good idea to review your portfolio for rebalancing opportunities at regular intervals, and is worth considering when markets have been very volatile.

“If you are a disciplined longer-term investor who has a diversified strategic asset allocation plan, you could consider more frequent rebalancing tied to how far asset classes have moved relative to [your] longer-term targets,”Liz Ann says.

Schwab clients can log in and use the Schwab Portfolio Checkup tool, under the Portfolio Performance tab, to assess whether their portfolios are still in balance with their target asset allocations.

Because markets continue to be volatile, Liz Ann suggests rebalancing gradually instead of doing it all at once. “Consider taking a dollar-cost averaging approach by setting a fixed dollar amount for your asset sales and purchases, versus picking a particular day to make adjustments,” Liz Ann says.

Next Steps

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market or economic conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

This information does not constitute and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, or investment manager.

Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.

Investing involves risk including loss of principal.

Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. For more information on indexes please see www.schwab.com/indexdefinitions.

Diversification, asset allocation and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets. Rebalancing may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events may be created that may affect your tax liability. 

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.