- We anticipate a gradual, but uneven economic recovery which may not achieve 2019 levels of growth until 2022
- The stock rally has outpaced the economic data; stock valuations are at historically high levels, while only 10% of the S&P 500 companies are offering financial projections for the remainder of the year
- U.S. GDP 2020 forecast to decline by 8% in 2020
- Federal spending increased $2.9 Trillion since late March and is expected to approve an additional $1 trillion before the fall
- U.S. Federal Reserve Bank keeping interest rates at 0% through 2022
- We have positioned our portfolio allocations with a bias towards industries which demonstrate resiliency in the face of this unprecedented economic realignment
- Longer-term prospects for stocks remain compelling, but financial markets may experience a period of choppy volatility in the second half of the year
We hope you are doing well, remaining healthy, and were able to enjoy your 4th of July holiday weekend.
After more than ten years of growth and rising asset prices, the world’s economies and financial markets have certainly been rocked by the COVID-19 pandemic. This unprecedented health crisis and accompanying economic shutdown threw both developed and emerging economies around the globe into a deep recession. The International Monetary Fund (IMF) is forecasting America’s Gross Domestic Product (GDP) will decline by 8% in 2020. Central Bankers and government policymakers throughout the world responded with the largest, synchronized, monetary, and fiscal stimulus our planet has ever seen. The U.S. has increased federal spending $2.9 trillion since late March and is expected to approve an additional $1 trillion before the fall. Meanwhile, the U.S. Federal Reserve Bank announced they are expecting to keep interest rates at 0% through 2022.
We continue to marvel at how quickly events are evolving. Even social distancing and safety protocols often change by the week. The financial markets steep and fast decline in February and March has been followed by an equally impressive bounce-back rally in 3 short months. The robust rally we enjoyed in the second quarter may continue into the summer but presently appears to be somewhat ahead of itself. Today, stock valuations are sitting at historically high levels, while only 10% of S&P 500 companies are offering guidance and forecasts regarding their business prospects for the balance of the year. Despite the lack of clarity in the short term, we are still expecting a gradual, but uneven economic recovery. Some of the world’s economies may not return to 2019 levels of growth until 2022.
We are pleased our client portfolios effectively weathered the market’s decline in March while productively participating in the rebound over the last three months. Our investment portfolios were repositioned in early April into cost-efficient ETF’s with a focus on the technology, telecommunication, and healthcare industries. We continue to view those segments of our economy as the winners today and in the near future. After our disciplined research confirmed the recovery in stock values would hold their rapid bounce-back gains, we further increased the growth component of our investments. The longer-term prospects for stocks remain compelling, but financial markets may experience a period of choppy volatility in the second half of the year. Stock and bond markets could be rattled in the months ahead as increases in coronavirus infections precipitate a slow down or reversal of government reopening policies. At a minimum, we are also expecting the requisite “media noise” surrounding the November election to increase steadily through year-end.