Investing

Economists brace for a decline in GDP — here's how the coming week's news could affect your money

Twenty/20

After two straight weeks of gains, the S&P 500 tumbled once again as an unprecedented plunge in oil prices highlighted concerns about the pace of economic growth ahead.

The question of just how much the U.S. economy has stalled as a result of the coronavirus pandemic will get an important answer in the week ahead. That's because the first read on gross domestic product (GDP) for the first quarter is due on Thursday. 

In addition to the economic toll of this pandemic, traders will monitor what happens in the states that have eased restrictions to gauge when the broader U.S. economy can reopen. Day-to-day, they respond to reasons to be optimistic or pessimistic, including potential virus treatments, news items about how specific companies are weathering the pandemic, and expectations as to whether layoffs will ripple through additional industries.

The week ahead is scheduled to be the busiest of earnings season: More than 140 companies in the S&P 500 — including Caterpillar, Ford, Amazon, Visa, and Kellogg — will report earnings results for the first quarter. The Federal Reserve is scheduled to meet, while economists are forecasting grim estimates for reports like consumer confidence and the number of people filing for jobless benefits.

Here's what to watch in the stock market during the week ahead — and how the news could affect your bottom line.

Economists project biggest GDP decline in 11 years

What's happening: The first of three estimates on GDP for the quarter that ended March 31 is scheduled for release on Wednesday, and economists currently project the biggest decline since the first quarter of 2009, during the Great Recession. Economists are estimating a 4.1% contraction in economic activity during the first quarter.

The real hit to economic growth is expected in the second quarter, and JPMorgan recently estimated that GDP could plummet 40% between April and June.

Why it matters: At any time, GDP, or the sum of the value of all goods and services produced in the U.S. economy, is closely tracked on Wall Street. Right now, however, the big question is not if the economy will fall into a recession, but rather how severe such a downturn will be. Historically, a recession has been defined as two consecutive quarters of declines in GDP.

If the economy contracted even more than economists estimate, there could be some short-term turbulence in the stock market.

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What it means for you: You may already be feeling the brunt of the economic slowdown. Layoffs exceeded 26 million in the past five weeks, and the situation could get worse. 

There are ways to take charge of your own situation, including updating your LinkedIn profile to attract potential recruiters, setting yourself up to earn more money when the economy reopens, and making smart money moves with your stimulus check.

If you've been laid off, we have tips on how to file for unemployment benefits and find alternative sources of income to tide you over. Finally, if you're still working but feel your job may be at risk, there are steps to take now to prepare for a financial disruption

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Will the Fed offer further support?

What's happening: The Federal Reserve is scheduled to convene for one of its eight annual meetings on Tuesday and Wednesday. While traders don't expect any change to interest rates, already near zero, they will be keen to hear Chair Jerome Powell's assessment of the economy currently. 

Why it matters: Central bankers have pledged to support markets and the economy and already have taken unprecedented action. Such steps have included slashing interest rates and unveiling plans to help businesses get up to $1 trillion in funding in the short-term borrowing markets and programs to support lending to small and midsize businesses.

It's possible the Fed could unveil new plans, too, at the upcoming meeting or otherwise.

What it means for you: The Fed is trying to stabilize markets and stimulate economic growth. With interest rates so low, it may make sense to continue with your plans to buy a home or car right now because it's become even cheaper to borrow money. Meanwhile, if you're considering refinancing your mortgage, ask yourself two important questions first. 

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The bottom line

With the busiest week of earnings season ahead, some wild swings in individual stock prices could in turn move the broader market. And coronavirus-related news, along with its toll on the U.S. economy, will continue to dominate the attention of experts on Wall Street.

When it comes to your portfolio, though, it's important to keep a long-term perspective and avoid making emotional decisions. That's because some people on Wall Street are optimistic about the prospects for stocks in 2020 and believe the worst of the declines has passed.

Finally, it's important to remember that downturns can benefit long-term investors and selling right now could be the biggest mistake of your investing career. In fact, right now could be a "real opportunity to create wealth."

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