March 23, 2020

Good Monday morning,

After the U.S. Senate failed to pass nearly $2T economic rescue package over the weekend, the Federal Reserve stepped in and vowed to spend any amount needed to support the economy, businesses of all sizes and to calm the financial markets.  This statement superseded the Fed’s earlier plan to purchase $500B in Treasuries and $200B in mortgage-backed securities in an effort to add liquidity to the economy.

Overnight, the Dow futures were down as much as 1,000 points, climbed to 500 points up and then turned slightly negative again by the time the market opened (at 6:30am PDT).

We expect to see some semblance of the start of a recovery once the Senate can agree on the terms of the economic stimulus bill they are voting on again today – once the aid funds hit both individuals and business in an effort to keep the economy afloat while a treatment and a vaccine for Coronavirus are developed.

In the meantime, we should expect to see unemployment skyrocket and GDP decline rapidly.  But the key word there is “meantime.”  This is most likely short-term, and although there may be some longer term effects to some businesses or business sectors (cruise line industry, for example), we believe the demand for goods and services accelerate beyond normal levels once the Coronavirus is behind us – reviving both employment and economic growth (GDP).

It is impossible to “time” the purchase and sale of stocks under normal market conditions, and it’s even more impossible now.  It sounds like to good idea to sell out of the market now and wait until the market get better.  Study and study shows this virtually never works as intended.  Selling out to the market (the sell-side of the “strategy”) feels good right until it is realized that the buy-side must eventually happen as well – and that’s what is missed virtually every time.

What will be the market’s silver bullet?  In the short run, it’s the financial safety net from the Federal government in the form of both monthly policy and fiscal policy.  Monetary policy is mostly in place, although with a commitment for unlimited funding.  Once the Senate passes their economic bill, fiscal stimulus will be injected into the economy as well.

In the “not much” longer run, it’s the broad testing, treatment and vaccine for the Coronavirus.

Be safe and well.