Dear Friends and Valued Clients,
Our everyday lives have changed dramatically over the last few weeks as we have worked together to minimize the impact of the COVID-19 pandemic. We know these efforts are necessary, but they also come at a cost.
Global economic growth has been slowing, the U.S. economy will likely contract temporarily, and U.S. stocks have entered a bear market. Big stock market moves, both up and down, have become the norm. The yield on the 10 year U.S. Treasury note has fallen to an all time low, making borrowing cheaper but challenging savers. In short, this has been a challenging period for many long-term investors, and you’re asking what’s next and what to do.
Despite elevated uncertainty, we’ve been encouraged by the actions of global central banks and governments to support their economies and stock markets through this difficult period. In the United States, the Federal Reserve (Fed) lowered its policy rate by a full percentage point, the first move that large since the savings and loan crisis in 1980, bringing the rate to a target range of 0 – 0.25%. The full impact of lower rates may have to wait until loan demand picks up, but other Fed actions may provide more immediate support to help financial markets continue to run smoothly, bolster short-term funding, and increase market liquidity.
At the same time, the U.S. government has already passed several measures to support the economy, and it is currently working on a major fiscal stimulus bill of at least $750 billion. Discussions are still taking place, but provisions could possibly include paid sick leave, expanded medical testing, unemployment insurance, direct financial support for consumers, and relief for some of the most heavily impacted industries.
It can be difficult to keep looking forward with so much uncertainty and so many unanswered questions right now. For long-term investors however, it is also important to maintain a clear vision of financial goals and the plan for getting there.
Market volatility like we’re experiencing now may provide pockets of opportunity for suitable portfolios. As recession is increasingly priced into markets, stock market valuations relative to their earnings power and to bond yields have become far more attractive. Current uncertainty means taking a careful, measured approach, but for appropriate investors there may be ways to consider taking advantage of these potential opportunities.
It is likely that we will see an economic rebound later this year and into 2021 as the outbreak is contained, businesses reopen, and fiscal and monetary support expands. The U.S. economy and corporate America have steered their way through world wars and cold wars, financial crises, terrorist attacks and geopolitical events. Through even the most challenging times, markets have found their way back to normalcy, and investors have been able to look to the future. There is no reason to believe that this time will be different.
Please stay healthy, trust your plan and as always, we encourage you to contact us with any questions.
Thank you for reading,
Benchmark Wealth Management