- Over the last 5 weeks, stock markets have experienced their fastest descent in history.
- The U.S. government response demonstrates a willingness to use all available fiscal and monetary tools to create an unlimited safety net and backstop around our economy.
- The timeline of economic recovery will ultimately depend upon a sustained reduction in the number of infections, such that normal economic activity can resume.
- We plan on opportunistically redeploying some of the cash reserves in our investment portfolios as evidence of improving conditions materializes.
The events of the last 5 weeks have certainly been historic and, at times, surreal. We hope you and your family are embracing social distancing, as it is one of the few things we can control to keep ourselves safe and healthy.
Last week the global financial markets experienced a “rush to cash” in a fear driven sell-off across nearly every asset class and sector. Over the last 5 weeks, stock markets have experienced their fastest descent from all-time highs to a bear market in history, surpassing even 1929. The February 19th stock market high will likely be recognized as the beginning of a recession that may be just as sudden and sharp.
Fortunately, COVID-19 now has our government’s full attention. The fiscal and monetary policy response by the U.S. has been swift and unprecedented in terms of size and scope. The U.S. Federal Reserve has cut their Fed Funds lending interest rate to 0%, while simultaneously committing to do whatever is necessary to create an unlimited safety net and backstop around our economy. Markets rallied yesterday with the news Congress was ready to pass a $2 Trillion stimulus bill that included a combination of direct financial checks to many Americans, significantly expand unemployment insurance, offer hundreds of billions in loans to business and provide additional resources as the virus spreads. We view this government response as mostly triage in the short term, as the rate of infections must finally begin to flatten before our economy can regain its footing. This may take longer than most of us hope, and as we stated earlier, the news on the health front is very likely to worsen before it gets better.
We plan on opportunistically redeploying some of the cash reserves in our investment portfolios, sequentially, in the upcoming months. Two primary catalysts will be needed to drive markets higher:
- Financial markets must begin to see evidence of a slowdown in new COVID-19 cases.
- Businesses getting back on their feet and our economy beginning to regain traction.
As always, please let us know if we can be a resource for you.