Weekly Investment Strategy

Key Takeaways

  • A proactive rate cut to keep economy from ‘falling back’
  • Equity market still ‘restless’ due to coronavirus fears
  • Diversification should help investors ‘sleep soundly’

Daylight Saving Time begins Sunday, and while we gain daylight hours, we lose an hour of sleep – something we need after witnessing four 2%+ daily swings this week. In fact, the Dow’s cumulative point move over the last five days exceeded 4,580 points! Volatility will persist until we get more clarity around the pace of contagion and the potential impact on the US economy – which could take time. Patience, not panic, is essential in order to make well-informed decisions. ‘Rest assured,’ we will ‘work around the clock’ to assess the true economic and financial implications of the coronavirus as they ‘come to light’ and determine the subsequent impact to our outlook. This week, we raised the downside risk to our 2020 GDP forecast (1.8%) and lowered our year-end S&P 500 target (to 3,256 from 3,400). As the situation is fluid, below is some perspective on the week’s events.

    • Fed Seeks To Keep The US Economy ‘Awake’ | The Federal Reserve’s surprise inter-meeting interest rate cut substantiated our belief that it would be proactive in extending the longest US economic expansion in history. The move caught investors off guard, as it was the first emergency rate cut since 2008, and it was larger than expected, 50 basis points versus 25. Since much of the recent US economic data is from prior to the escalation of the virus headlines, a deterioration in economic data from other countries (e.g., China’s Manufacturing and Non-Manufacturing PMI Indices at historic lows) and the continued rise in cases inside and outside of China was evidenceenough for the Fed to justify preemptively acting now rather than being late and falling behind the curve. While the Fed and other global central banks (e.g., China, Australia, Canada, etc.) have taken actions to keep their economies from ‘falling back,’ policymakers remain ‘alert’ that the next phase of stimulus may very well have to be fiscal stimulus in the form of tax cuts or spending initiatives. Policymakers are in a ‘race against the clock’ to shore up consumer and business confidence to avoid a self-fulfilling recession.