Equities remain defensive as investors await the largest relief package in history.
In the past week alone, investors witnessed the S&P 500’s worst daily decline since Black Monday – the index has slid 30% in the weeks since its February 19 high. We also saw swings of more than 4% for eight consecutive days – another historic moment in the domestic stock markets. On the bright side, investors are also playing witness to a global effort to band together to protect ourselves and one another from further spread of the virus and its impact on the economy. More than a quarter of the country has been ordered to stay home (judging by the decline in transportation, it seems they’re doing so) and many corporations voluntarily reallocated their resources toward production of crucial supplies and medical interventions. The effort by policymakers, corporations and consumers gives Chief Investment Officer Larry Adam hope for the future, especially over a longer time horizon.
The Federal Reserve (Fed) has taken quick action, announcing two emergency interest rate cuts to bring the overnight lending rate to zero, restarting asset purchases and taking several steps to boost liquidity in the credit markets. It’s clear the central bankers here and abroad are taking their role seriously and will do what they can to ensure the stability of their economies and the financial markets.
Lawmakers in Washington also moved to act swiftly, working on a phased fiscal stimulus plan, first offering $8.3 billion toward specific healthcare measures, and then another $100 billion to provide free testing, food assistance, paid sick leave and unemployment insurance. Washington Policy Analyst Ed Mills believes the next wave will address large-scale issues faced by small businesses and distressed industries (e.g., travel, leisure), as well as put cash directly into the hands of taxpayers. All told, this will likely be the largest stimulus bill in our nation’s history. Though it may not be enough to offset the impact of COVID-19 on the economy, explains Chief Economist Scott Brown, it should lessen the damage and help support the eventual recovery.
It is unnerving to bear witness to such rapid change and uncertainty, and it’s understandable that global equities are on the defensive. Healthcare Analyst Chris Meekins believes there’s a strong chance the tide will turn for the better by Memorial Day. If so, we might see a robust economic rebound over the second half of the year, as consumer spending returns and businesses add staff again. Pavel Molchanov, energy analyst and director of equity research, expects oil prices to recover by year-end as well. Global oil demand is down more than 2008 and 2009 combined. Molchanov believes that oil will bottom near $20 a barrel followed by a sharp bounce to $45 by the end of the year.
While no one can predict when the stock market will begin to stabilize and even rise, it’s important to remember that the markets are generally forward-looking and will start to rebound long before economic data and corporate profits find a trough, explains Mike Gibbs, managing director of equity portfolio & technical strategy. Long-term investors may want to patiently and thoughtfully add partial positions over the short term until we get more clarity. Having concerns when volatility affects your portfolio is normal and is why we emphasize the importance of a tailored financial plan that accounts for the occasional vagaries of the market while making strides toward your long-term financial goals. Please reach out to your advisor with any questions you may have about your individual situation.
Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of Raymond James and are subject to change. There is no assurance that any of the forecasts mentioned will occur. Economic and market conditions are subject to change.