We understand communication is important and even more important during difficult times. We hope you and your loved ones are staying safe. Hopefully, you can spend more time with your family and while paying attention to news reports, also getting a break from them. You can take comfort in knowing you have a team of seasoned investment professionals monitoring markets for you. In case you missed it or prefer to get “to-the-point” updates from us, we have some good news for you.
In general, for markets to move higher, investors need to see two things - what’s being done to stop the virus spread and what’s being done to limit economic disruption. We got some clarity on the latter point. It took lawmakers a bit longer than many investors had hoped, but Congress was able to come to terms with a significant stimulus bill of $2 trillion. That’s more than double the stimulus bill in 2008.
The stimulus package includes a combination of money being sent directly to households and companies. These include cash payments to many Americans, loans for small businesses that become grants if firms use them to maintain payroll, a significant increase in unemployment insurance payments and needed support for health care systems and state/local governments. Lastly, there is a fund to allow loans for hard-hit industries (airlines for example). The bill still needs to be voted on in the House before going to the President’s desk to sign, but it seems leaders in both parties have come to a preliminary agreement on the deal.
The massive stimulus package should provide a relatively quick injection into the economy. However, we do think economic data and equities could still be challenged in the coming months. People and businesses will hopefully have the liquidity to pay bills and rent and get through the coming weeks but consumer spending is still at a virtual standstill. Based on what we have seen from earlier afflicted areas (such as Asia and Europe), the upcoming economic data will be very bad. This week, we will also likely see an unprecedented increase in unemployment claims. Additionally, there will be more news around the growing number of COVID-19 cases and the stress this will have on our health care system.
While no one knows when the stock market will bottom, this fiscal stimulus may provide for a quick recovery. While it likely won’t be enough to prevent a sharp economic decline in the second quarter, it should help to support an eventual recovery once the COVID-19 virus has been brought under control. Until we get more positive news around the virus itself, we think markets will remain volatile. It is important to remember back to the financial crisis and what stimulus did in 2009 and beyond. It can be a driving factor for a recovery, which may be sharp. Regardless of the speed of the recovery, portfolios should be positioned appropriately for long-term objectives. Rest assured, our team will relentlessly continue to monitor the spread of the virus as well as its economic and market implications. If you have any questions whatsoever, please do not hesitate to contact us.