We are now in week three of stay at home and we have adopted new routines and are settling into this temporary normal. But staying calm and carrying on still poses major challenges. We are experiencing a two-pronged assault. The virus threatens our health and that of our friends and families. The economic impact of sheltering in place and lockdowns threaten our livelihoods and finances. This makes for double the stress. We have faced one or the other before but never two at the same to this magnitude.
On the health front, lockdowns and sheltering in place orders are there to reduce virus transmission and alleviate stress on our healthcare workers while they prepare for surges to come. Until there is a vaccine and established treatments “bending the curve” is building a bridge to a time when we are better prepared to deal with the challenge. Hopefully we can soon be on a better footing with more testing, more protective gear for first responders and hospital workers, and the needed medical equipment. Eventually treatments and vaccines will be discovered and tested, leading us to the other side of this.
Economically the recently passed emergency legislation and aggressive Federal Reserve intervention have built another bridge designed to support the economy long enough for economic activity to resume. It will not prevent a recession but hopefully will reduce its magnitude. These actions will provide relief to shore up small businesses and help the unemployed so that we keep the lights on until we get back to work, whenever that might be. $2.0 trillion is a lot of money. Some of it will be ill-spent, some will have unintended consequences, and some will just be inadequate. This is clearly a time when the perfect could not get in the way of the good. The ultimate strong consensus and bi-partisan action was encouraging at many levels.
The equity markets now seem to be trying to find some balance. In the last couple of weeks, we have experience unprecedented volatility. This is a direct result of the uncertainties surrounding the spread of COVID-19 and the economic damage wrought by attempts to contain it. The dramatic fiscal and monetary responses have provided hope that we can avoid the worst of the pandemic predictions. But uncertainty is still high and, in many ways, out of the competence of economist’s and investment professional’s abilities to assess. We know about markets in downturns, not shutdowns. But assessments are made every day and reflected in prices. This may be unsettling as uncertainty and volatility remain elevated. Eventually markets, with their collective wisdom, will hone in on the new normal, well ahead of actual experience and corroborating data. Recently a friend of mine from Singapore posted a quote from Buddhist Daily, “When you can’t control what’s happening, challenge yourself to control the way you respond to what’s happening. That is where your power is.” This is clearly good advice in this time of such unease.
As individuals, we can control our social distances, find ways to stay connected with family and friends, exercise, and just be extra kind to ourselves and others. From a portfolio perspective, we will be focusing on meeting your short-term needs, mitigating portfolio risk, and positioning for the changes that will come with our eventual new normal.
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