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Unprecedented Stimulus

The passage of the CARES (Coronavirus Aid, Relief, and Economic Security) Act marks the largest stimulus package in US history. The extent of the damage caused by the Coronavirus pandemic is still unclear, but the CARES Act is designed to provide some direct fiscal relief.

Our Perspective: Even though it’s not yet clear if the market has bottomed out, this move is a significant step in relieving some of the pressure from the recent economic standstill. We believe there’s opportunity to be found in the equity market at this time. It’s important to stick to our fundamental investment processes, to find strong strategy fits at attractive valuations.

For more, see our recent blog post, Will the CARES Act Stimulus Be Enough?

Is History Repeating Itself?

The market’s shaky month and constant negative news is giving a lot of investors flashbacks to 2008. Key differences separate the two downturns, including the sparks that caused each event. Despite these differences, the two events had similar conditions underpinning them, including unsustainably high investor expectations, which left the market susceptible to weakness.

Our Perspective: In our opinion, it’s important to take lessons from the Global Financial Crisis as we continue to navigate the current market volatility. Bear markets are difficult and uncomfortable for all investors, but it’s important to keep a long-term perspective. Having a well-defined financial plan will allow you to succeed over the full length of market cycles.

For more, see our recent blog post, Acting on the Lessons from 2008.

Fed Rates

The Federal Reserve (Fed) announced a series of measures that hadn’t been seen since the 2008-2009 Global Financial Crisis. These included bringing the Fed’s policy rate back down to zero. These actions weren’t to prop up stock market prices, but to reduce the strain on the financial system caused by market volatility.

Our Perspective: The Fed’s moves were helpful and designed to support the health of the overall financial system. These actions were useful in boosting liquidity and helping solve other monetary challenges.

Nevertheless, monetary policy is no match for what is fundamentally a medical issue, and fiscal action is necessary to reduce additional economic fallout.

For more, see our recent blog post, Fed Moves to Support Market.

Entering a Bear Market

In the second half of March, the US economy entered its first bear market since the end of the financial crisis. The energy industry is already facing difficulties, exacerbated by extremely low oil prices.

Our Perspective: As outlined in our 2020 Investment Outlook, the stock market began 2020 priced for perfection. Investor sentiment was positive, but a market downturn was bound to happen.

We believe turmoil in financial markets brings an opportunity to revisit long-term financial plans, upgrade client portfolios, and in multi-asset class portfolios, increase exposure to equities.

For more, see our recent blog posts, Coronavirus and a Bear Market and Recapping a Historic Week in Markets.

Our View
Economic Cycle		Global economic growth is rapidly decelerating, the extent of which remains unclear; international economies are grinding to a halt as well; the possibility of a recession is now very much in the cards, if not outright likely at this point
Stock Market		No longer at all-time highs, stocks have entered their first bear market in over a decade; an abundance of global liquidity may aid equities prices in the near term; our long-term equity return expectations are improving, but not yet enthusiastic
Bond Market		Central bank policies moved from accommodative to financial crisis-era extremes and beyond; additional policy measures will require creativity and further break into the realm of the unknown; negative and ultra-low interest rates will be a major challenge for long-term fixed income performance
Foreign Exchange		A flight to safety drove US dollar strength during the financial market volatility; longer-term, conditions persist for the US dollar to gradually weaken as domestic fiscal and monetary policies become highly expansionary
Important Issues on the Radar		Trade Tensions: The Coronavirus has pushed trade tensions off center stage. No longer the immediate high-risk event that is was before, populism and economic nationalism continue to bubble under the surface of many major developed markets Coronavirus: The virus is shutting down and/or restricting travel and trade throughout the world, further challenging an already soft economy; should the virus prove more difficult to corral and defeat, then it could be a catalyst for additional economic and financial market weakness

Indicates change