COVID-19 Markets: Some Historical Perspective + Govt Stimulus Measures
During share market movements such as we have seen over the past six weeks, we know the instinct to act rather than remain steadfast can be compelling. Even though your investment strategy has been built to withstand market conditions such as this, it can feel very unnatural to sit still.
Some historical perspective might provide comfort in this regard.
Even though the catalyst was different, we need only go back 12 years to the GFC to see the market experiencing a level of decline reminiscent of what we’re seeing now. And also to remember that things did rebound after that decline.
Though it may be tempting, making any attempt to exit and enter the market is fraught in times of such high volatility. Here’s an example of why.
Last week on 24 March 2020, the S&P/ASX 200 index closed at 4546 points. The index last dipped to this level on 7 December 2012 when it closed at 4552.
At the close of trading today, just eight days later, the index has finished at 5258, representing an increase of 15.6%. In 2012, it took until September 2013, some nine months, for the market to cover this much ground.
If you needed any further evidence, you might have seen that last week on the same day (24 March), the Dow Jones Index in the US had its biggest one day gain since 1933, rising 2,113 points. That was 11.4% on a single day.
Against the backdrop of this share market volatility, governments around the world are injecting historic levels of fiscal stimulus into their economies to provide support to individuals, families and businesses.
Australian Government Stimulus Measures
For your information, here are all the measures being taken (as of 1 April 2020) by the Australian government who have announced three separate levels of stimulus to date:
- Support for businesses and preservation of jobs – Employers, including sole traders with no employees, will be eligible to receive a JobKeeper payment of $1500 per fortnight per employee for up to six months. This payment allows businesses to keep employees on their payroll at a time where a reduction in turnover has seen many companies letting staff go. Employers can register their interest in applying for this payment via ato.gov.au from 30 March. Fact sheet.
- Income support for individuals – Individuals who are not receiving the JobKeeper fortnightly payment from their employer are eligible to apply for a Coronavirus JobSeeker supplement of $550 per fortnight. Fact sheet.
- Payments to support households – Two separate payments of $750 are being made to any person currently receiving income support payments from Centrelink or the Department of Veteran’s Affairs or holding a Commonwealth Seniors Health Card. The first payment will be made from today, 31 March and the second payment will be made from 13 July. Fact sheet.
- Early release of superannuation – Eligible individuals can access up to $10,000 of their super between now and 30 June and a further $10,000 in the first three months of the next financial year. Doing this will not impact on Centrelink of Veterans’ Affairs payments. Fact sheet.
- Reduction in minimum super pension drawdown rates – This reduces the minimum drawdown requirements for account-based pensions and similar retirement income products, by 50% for 2019-20 and again in 2020-21. Fact sheet.
- Reduction of social security deeming rates – Deeming rates are now 0.25% for the lower deeming rate and 2.25% for the upper deeming rate. This specifically benefits existing and new age pension and service pension recipients whose entitlement is currently being determined by the income test rather than the asset test. Fact sheet.
- Increase in the instant asset write-off – For businesses purchasing assets, the instant asset write-off threshold has been increased from $30,000 to $150,000. Fact sheet.
If you are unsure which of the measures above relate to your own specific situation, please do not hesitate to speak to your adviser.