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March 27, 2020
The president has signed a historic $2 trillion stimulus package aimed at stemming the economic impact of the coronavirus. That measure comes on the heels of the Federal Reserve (the Fed) promising to buy unlimited quantities of government debt and lend money to businesses and local governments alike. “There may not even be a word in the dictionary to adequately describe what we’re going through right now, except maybe ‘unprecedented,’” says Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank.
What are the policies trying to achieve?
The $2 trillion U.S. fiscal stimulus aims to help keep the economy going by distributing money directly to businesses to help them avoid layoffs, and to individuals and families affected by the crisis, to enable them to keep paying for necessities. Likewise, the Fed is purchasing financial assets to help keep money flowing through the economy at a time when investors have been selling at a furious pace.
Monetary policies are already having some positive effects, Hyzy says. “Capital is flowing more freely in the bond markets, and there’s better liquidity, though we still have a ways to go.” Still, fiscal and economic policies, no matter how large, can’t drive a recovery that first and foremost depends on signs that the health crisis is easing. “The heart of the issue continues to be the health data, and when infection rates crest,” Hyzy says. “We’re obviously not there yet.”
According to Michelle Meyer, head of U.S. Economics, BofA Global Research, “What the fiscal and monetary policies can do is to keep enough of the economy running that once we get past the shock of the virus, there’s an economy to return to.”
What could happen next?
As the record 3.3 million Americans filing for unemployment benefits last week makes clear, the economic crisis is far from over, says Meyer. “Jobs data for April, which will be released in early May, could reveal 4 to 6 million Americans with lost jobs, and an unemployment rate nearing 7%,” Meyer says.
Depending on when the health crisis eases, the economy could still “snap back,” thanks to pent-up demand from millions of consumers currently staying home, Meyer says. “More likely, though, we’ll see a long, slow, lackluster recovery with lots of bumps,” she adds. “There’s an important psychological element here, with people displaced from the workforce, quarantining and sheltering. It will take time for them to overcome fear and re-engage.”
What can investors consider doing?
“The three watchwords for a portfolio during times like these are growth, yield and quality,” says Michael Hartnett, Chief Investment Strategist, BofA Global Research. “You need exposure to growth because there’s not a lot of it around right now.” Promising areas may include technology, health care and consumer staples, notes Hyzy. “With U.S. Treasury rates at historic lows, investors may find potential for yield with investment-grade bonds, municipal bonds or dividend-paying stocks," he adds. Quality means exposure to stocks or bonds of companies with especially strong balance sheets. Your advisor can help you review your current investment mix in light of the current market environment.
Information is as of 03/27/2020
Opinions are those of the author(s) and are subject to change.
The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for Global Wealth & Investment Management ("GWIM") clients, is part of the Investment Solutions Group (“ISG”) of GWIM, a division of Bank of America Corporation (“BofA Corp.”).
BofA Global Research is research produced by BofA Securities, Inc. (“BofAS”) and/or one or more of its affiliates. BofAS is a registered broker-dealer, Member SIPC, and wholly owned subsidiary of Bank of America Corporation.
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