Last week the CPWM Team hosted a call with Chris Low, the lead economist for FHN Financial. Chris has been quoted in Business Week, The Wall Street Journal, The New York Times, and many other publications around the world. He is a regular on Bloomberg TV, CNBC, and Fox Business Channel and is often heard on the BBC World Service radio and American Public Media’s “Marketplace.” Chris has been recognized multiple times by Bloomberg as the most accurate forecaster of Treasury note yields. Chris covered several topics around the current COVID-19 virus, the relative US experience, the Fed response, and economic impact.
In terms of current COVID-19 status, global cases have topped 2.5M, and will likely continue to grow, though there is data to show that the rate of increase is slowing. The experience in the US has been similar to other western European countries, which is a little different compared to data received from the Chinese government.
Looking at economic COVID-19 impact, 22 million workers filed for unemployment after the March jobs survey, which is staggering considering that US Jobless Claims have never topped one million in one week. There could be 30+ million in total job losses, a number that has no precedent in the US. The US Economy has not seen the impact of a pandemic in the last 100 years, with the entire economy shutting down at once, so comparisons with previous periods of distress need to be made cautiously.
For overall economic updates, data for the NY Fed is pointing to a 11% year/year decline in GDP. Global manufacturing (11-yr low) and services (lowest ever) surveys point to large declines in global output and demand. Financial markets are considered a leading economic indicator, and so far, equities could be positioned for a quick rebound, while fixed income spreads have tightened.
In the US, the Federal reserve has taken unprecedented action to support our economy. Through the CARES Act, the Fed and the US government have released a whopping $2.1 trillion into the economy and could release another $4 trillion as needed. The Fed has also opened several lending and purchase windows to help backstop the economy and provide liquidity (the Paycheck Protection Program Lending Program, the Main Street Lending Program, and the Municipal Liquidity Facility are just a few examples – more details on our blog post).
The Fed’s growing balance sheet could reach $9 trillion, with most of the growth through securities purchases. All in all, we feel that Fed Chairperson Powell and the Fed have been proactive in their response and have certainly mitigated worst case scenario damage to the economy.
We are constantly reviewing projections from important economic players, based on best-case scenarios where a vaccine, herd immunity, and improved testing are near term, as well as worst case scenarios where a second wave of infections require further/extended shutdowns and stay at home orders are required. At this point, the median projection is a global GDP decline of 3% for 2020.
We understand that all the news and data around us can be overwhelming sometimes or it might feel like there are disconnections between stock markets, macroeconomic data, and virus progression. We are here to review all of that and keep a close eye on major events, as well as guide you through these uncertain times. At CPWM, we continue to believe in our diversified portfolio discipline. The amount and severity of data is further confirmation that guessing the short-terms ramifications is a difficult, if not impossible, task. We are of the belief that balancing investments between various asset classes allows us to protect portfolios from short-term volatility. We further believe that periodic rebalancing provides flexibility and adds incremental value to overall portfolio performance by buying into the weakness of the markets and selling out of positions that performed well. We believe more than ever that these principles are the basis of a sound investment and portfolio management approach. As always, we are here to listen to your questions and concerns so please don’t hesitate to reach out.
All types of investments involve varying degrees of risk, and no assurance can be given that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by CPWM, LLC), will be profitable, will match any corresponding indicated historical performance levels, or be suitable for an individual’s financial situation. The discussion or information contained herein does not serve as investment advice.