Volatility Continues as Fiscal Stimulus Package Takes Shape
Market Volatility Tip:
If you had invested in the stock market from 1999-2018, and not touched it, your money would have nearly tripled. But if you had traded in and out and missed out on just the 10 best-performing stock market days over that 20 year period—your returns would have only been half of that.
The economic effects of COVID-19 have accelerated quickly and the financial markets are experiencing heightened volatility. The major U.S. stock indices rise on positive news, such as the president’s call on Tuesday for lawmakers to pump $1 trillion into the economy, and fall when action does not come swiftly or new concerns emerge.
Congress is working on a fiscal stimulus package. The U.S. Federal Reserve has cut its overnight lending rate to essentially 0% and restarted asset purchases, a process called quantitative easing. More importantly, the central bank has made other efforts to boost liquidity and to encourage banks to work with borrowers and use their capital buffers to ease credit strains.
The fiscal stimulus discussion includes direct cash payments to individuals, support for small business loans, industry relief for airlines and hotels, other industry support such as tax credits, and changes to health programs, according to Raymond James Washington Policy Analyst Ed Mills.
Raymond James Chief Economist Scott Brown anticipates there will be a decline in U.S. gross domestic product in the first and second quarters of 2020, though precise projections are challenging to make.
The key factors are how much of a hit the economy experiences, how long extreme social distancing lasts, and whether there will be long-term changes in consumer behavior.
Mike Gibbs, managing director of Raymond James Equity Portfolio & Technical Strategy, maintains caution for equity markets in the near term, but believes the rapid decline that has already taken place will present an opportunity for longer-term investors.
“The Fed is providing the liquidity necessary to ensure the financial markets continue to function properly,” Gibbs said. “The potential for a massive fiscal stimulus package will help cushion the blow we are going to see in the U.S. economy in the next several weeks and possibly months.”
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Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of Raymond James and are subject to change. There is no assurance that any of the forecasts mentioned will occur. Economic and market conditions are subject to change.
Material prepared by Raymond James for use by its advisors.