SUMMARY. Despite the unprecedented market sell off and concern over growth we continue to maintain that the virus will come and go. It will cause a BLIP in growth (first half of 2020) not end it like some today prophesied. You heard repeated concerns, voiced in the media today, over a deep recession as well as issues with both market and corporate liquidity. Some on CNBC went so far to say that economic disruptions will cause major corporation failures. In other words, a virus or health crisis has evolved into a full blow financial crisis. We don't agree. Today, the Federal Reserve unleashed an unprecedented amount of money into the banking system amounting to $1-2 trillion over the next few days. Next week they may cut rates further and may once again formally launch QE as fiscal stimulus plans get finalized by Congress. China may follow suit soon despite the virus there peaking and businesses reopening (amounting to 6 weeks of disruptions). In other, words the central banks are about unleash a torrent of cash into the financial system as well as cut rates all which may blunt the economic weakness. Besides unmitigated panic born from media hype regarding the virus spread outside of China, see our prior post on the impact of waning stock buybacks by corporate American adding fuel the sell off. The oil crisis born from Saudis is also fanning the flames. Lastly leveraged used to purchase assets born from the REPO liquidity released into the market by the FED last September maybe unwinding.
INVESTMENT IMPACT. Its our view that what is unfolding volatility wise in the market is emotionally based on fear. Its hard to predict changes in emotion and how long fear will last. But based on experiencing 3 market corrections tied to bubbles over the last 30 years we view when fear based selling ensues market stability may not be far off. However, there needs to be a catalyst to reduce fear. We continue to believe that the spread will continue and containment will unlikely occur. Thus, we are focused on progress on the drug front which may change sentiment lifting the cloud of uncertainty beginning next month or sooner. Further, central bank actions to boost growth may also play a role in coming weeks or days. At his point we are only making minor changes to portfolio allocations keeping equity exposure steady looking past the near-term volatility into a better environment in second half 2020 for accelerated economic growth. To be clear, our outlook for better growth ahead has not changed as media driven fear has increased near-term. Further, we are focused on positioning portfolios for better growth ahead and what assets will benefit vs the current environment. Remember, market bottoms occur when things look bleakest either emotionally or fundamentally depending of the nature of the selling. The assets one owns today may not be the ones to own in the environment to come so the key is to figure that before the future becomes apparent and being positioned correctly. We are more focused on this point vs timing the market or day to day market swings.
For more insights see our website and disclosures found there at BCA. As always contact us for further explanation of how these events can effect your finances.