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Market & Strategy Views

Author: Kurt Spieler, Chief Investment Officer

As the COVID-19 pandemic continues, the economic news flow, especially employment, continues to be bleak. The U.S. reported 6.1 million initial jobless claims last week bringing the total job losses to 16.8 million over the past three weeks. This significant increase in people out of work results in an estimated unemployment rate of 15%.

Due to the unprecedented deterioration in the labor market, the federal government has aggressively taken steps to cushion the economic downturn.

  • The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law on March 27th, and is the third bill from Congress in response to the coronavirus. The $2.2 trillion Act includes cash payments to taxpayers, expanded unemployment insurance, and increased funding for healthcare providers, small business loans, and tax relief to individuals and businesses.
  • The Federal Reserve also has been aggressive. After cutting interest rates to zero and putting in place various credit facilities, the Fed on April 9th took additional steps to support the economy. This included a liquid facility for the Paycheck Protection Program (PPP), a Main Street Lending Program ($600 billion), increased corporate credit facilities ($850 billion), and a new Municipal Liquidity Facility ($500 billion).

This economic downturn is unique as the government essentially shut down the economy to limit a public health crisis. No one knows the extent of the damage done to the economy by Covid-19. As we near the potential peak of the virus in terms of cases, many are wondering when the U.S. economy will gradually reopen and stabilize.

The actions taken by federal and state governments, along with the Federal Reserve, have encouraged equity and credit markets to stage strong recoveries. In the week ended April 9th, the S&P 500 Index rose 12%, its best week since 1974. As of April 14th, the Index trades 27% off its March 23rd low, but remains 16% below its all-time high. This week represents the beginning of earnings season with major banks and healthcare companies reporting. Estimated earnings for 2020 have been reduced by around 15% for the S&P 500, but most investors expect further decreases. Although many companies will likely remove earnings guidance, their comments on the level of business activity, dividend outlook and investment plans will be closely monitored.

In today’s unsure environment, we have advocated staying invested and maintained our stock allocation in client portfolios. We believe this approach has been prudent given the level of economic uncertainty. We are encouraged by the stock market rebound, but history shows that sharp swings in sentiment and stock prices are typical during deep recessions. Tactical decisions recently implemented include trimming fixed income and adding to our hedged equity fund. Within individual equity strategies, our portfolio managers have increased trading activity to take advantage of market volatility and better position portfolios.

Kurt Spieler, Chief Investment Officer

About the Author
Kurt Spieler is Chief Investment Officer for First National Bank Wealth Management, where he is responsible for developing and implementing investment strategies. This includes leading the asset allocation, equity, fixed income and manager research committees. In addition, Kurt manages investment portfolios for high net worth and institutional clients.