Views During a Pandemic

A resurging global pandemic combined with massive social upheaval would seem to be a textbook recipe for uncertainty and uncertain markets tend to move downward. Yet, we saw that the capital markets had one of their best quarters ever, erasing many (but not all) of the losses from March. The speed and scale of the market rebound caught many market observers off guard. Including, if I am being honest, myself. What caused it? What happens next?

 

The market rebound had its genesis in many areas, but two stand out. First, the Federal Reserve has injected a significant amount of money into the economy thru Quantitative Easing. Second, the Federal Government has enacted a number of programs designed to “bridge” the economy over the quarantine period, including additional unemployment insurance payments, the Payroll Protection Act, and sending out stimulus checks. These policies have worked as intended, but many of them are scheduled to end in July. Although, I would be very surprised if they were not extended in some fashion or form. It is an election year after all.

 

Let’s touch base on COVID-19 itself. As of this writing a majority of states in the United States are experiencing an uptick in cases. Many are starting to roll back opening and issue orders requiring masks. Some of this was to be expected as we saw similar rollbacks in both China and South Korea who are about six to eight weeks ahead of us. Regrettably, the strength of the resurgence in the United States seems to be greater than we’ve seen elsewhere. Until we get more control of the virus, the economy will continue to be on a shaky foundation.

 

As we look into the future, we break our outlook into two different segments: Short Term (less than one year) and Medium Term (greater than a year). In the short term we continue to see a heightened risk from various areas. There is the virus itself, but also, given the amount of governmental support for the economy, the risk of a policy error is moving higher. A policy error is when either the Federal Reserve or the federal government over or underestimate what it takes to keep the economy on even footing. Finally, the election is just four months away and its impact may be felt greatly in the markets. Given the uncertainty, we are moving accounts to slightly safer positions as the situation demands.

 

In a medium-term view, we remain constructive on the United States. The changes that will come out of this period, such as de-globalization, will cause dislocations and those may be painful to many. Americans are known for their resiliency and adaptability and our economy is a reflection of those values. So, we will hopefully see a longer-term positive trend return sometime in late 2021.

 

On a personal note, I’d like to say thank you to you, our clients. As we adjusted to virtual meetings and phone calls it has changed how many of you interact with our office and we truly appreciate your patience and willingness to try and learn new systems and ways of working together. As always, if there is anything we can do for you, please don’t hesitate to reach out. Thank you for your continued trust. o

 

 

 

 

 

Kevin P. Sullivan, CFA, CFP®, AIF

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1229 Lake Plaza Drive

Colorado Springs, CO 80906

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Any opinions are those of Kevin Sullivan and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.