With millions of Americans under a ‘shelter-in-place’ order, the U.S. economy is expected to contract sharply in the second quarter. In response, Congress passed the CARES Act and the FED has increased market intervention by expanding repo market operations and establishing numerous credit facilities for distressed areas of the market.
Trillions of dollars of spending that were not anticipated a few weeks ago will now occur. Furthermore, trillions in tax receipts will be lost as revenues to the Treasury will shrink meaningfully. We believe we will have massive budget deficits not seen since perhaps World War II and this crisis will alter the path of debts and deficits for decades.
The economic pain will be felt swiftly and we think markets are likely to remain extremely volatile for the foreseeable future. We expect unbound economic and financial uncertainty to gradually wane later in the year, but it will not be a quick process.
We continue to believe that investors should be patient and adhere to a well-constructed, diversified investment portfolio anchored to your goals and time horizon. Please reach out to your Legacy One Financial Advisor to discuss headlines, any concerns you may have and to review your individual portfolio.
Below is an overview of some of the data points that we have been monitoring:
- Congress passed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) on Friday, March 27. This stimulus package is estimated at more than $2.2 trillion dollars.
- Since the COVID-19 crisis emerged, the Federal Reserve has fired cannon after cannon and has truly become the mass buyer of last resort in an unprecedented manner.
- Unemployment claims soar as hospitality, leisure, and travel sectors of the market are crushed. Unemployment claims on March 21st set a record with 3.3 million Americans making claims. The following week, on March 28th, 6.6 million claims were made breaking the previous record set just a week ago.
- Flight to safe haven assets combined with accommodative central bank policy
- Spike in credit spreads amid coronavirus concerns
- Lack of liquidity or ‘liquidity crunch,’ the FED has acted to mitigate liquidity issues
- Social distancing and stay at home orders have put a strain on economic activity
- Small cap’s have more sensitivity to market downturns
- Fiscal policy response to the global pandemic should help businesses through these times of slower business activity
- Slowdown in business activity weighed on energy and industrial commodity sector-sensitive asset classes.
- Despite falling yields, risk-off sentiment detracted from U.S. REIT returns.
Please reach out to your Legacy One Financial Advisor to discuss headlines, any concerns you may have and to review your individual portfolio.