VTI peaked on Feb. 19, just 5 weeks ago. The decline has hit with remarkable speed. We're back to early 2017 levels.
This downturn feels different right now because it feels like there's a simple explanation for the decline -- the virus and the quarantine -- and there's something of an end in sight: quarantine until it gets down to manageable levels, increase hospital capacity through more ventilators and PPE as much as we can, increase funding into drugs and vaccine research with the hopes that something comes up in the next 12 months, and let the infection rate slow as more of the population recovers and has some form of immunity.
But we are still in very early days of this financial crisis, and I don't think we've seen the wider repercussions to the global economy. Over the next two months, the number of infected people with serious complications will skyrocket, our hospitals will be overwhelmed, and many people will die. It's hard to imagine the stock market improves or even remains stable during that time.
In the meantime, many businesses will stop paying rent. This will cause landlords, many of whom are heavily in debt, to default on their debt. Residential mortgage defaults will increase. Businesses will default on their bonds. This will cascade throughout the economy. Large companies will start to go bankrupt, especially in the oil & gas sector, and may stay in bankruptcy for some time due to the lack of clarity of when and how the business can be viable. Small businesses will shutter at a rate that I think is unprecedented (many already have). And consumer spending, usually the primary driver of the US economy, will take a massive double hit from a spike in unemployment possibly higher than we've ever experienced in this country and the world, as well as the changing behaviors of quarantined consumers.
I remember the feeling in early 2008, when Bear Sterns collapsed, and people started talking about the mortgage crisis and hoping it would be contained. Lehman Brothers didn't collapse until 7 months later, and the stock market didn't reach the bottom until 6 months after that. I also remember the feeling of utter panic in the marketplace in March 2009, where people were talking about the possibility that the economic model that had fueled our growth over the past century had come to an end.
It did not, as we know, and we recovered, but I won't forget that loss of faith in the system that became so widespread in the depths of the last recession. Let's hope it does not get to that point. When you ask 'is this it', for your portfolio, that's what I remember.