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March 23, 2020
Hello By Thomas E. Nugent Executive Vice President, Chief Investment Officer PlanMember Securities Corporation
As the Coronavirus spreads across the globe, the risks to economic growth and financial market health continue to increase. Fears among investors combined with the forced mechanical selling of equity securities have depressed markets to an extraordinary degree because of a lack of buyers. Imagine if you had to sell your house by the end of today. Your selling price would likely be substantially below a realistic market price. To extend the analogy, suppose everybody in your neighborhood had to sell his or her house today. Then what would your house sell for? The equity markets are suffering from that same minute-by-minute selling pressure, exhibited by thousand-point swings on the Dow Jones Industrial Average due to virus-induced illiquidity. The bottom line is that equity markets are out of line with any valuation that is based on some balance between buyers and sellers and, until we get the virus problem under control, the volatility is likely to continue. On a more positive note, investors who rebalance on a quarterly or monthly basis may offer a short-term break from illiquidity as they will likely be purchasing stocks and selling bonds in early April. This rebalancing effect could put upward pressure on stock prices.
The Coronavirus is not the only major problem challenging our current economic outlook. The collapse in oil prices is likely to undermine the structure of oil producers in the U.S., although the price decline will help consumers of gasoline and heating oil. There must be an agreement among major oil producers to curtail production so as not to further depress oil prices.
A major positive is the commitment of the government to cushion the impact of the virus. Trillions of dollars of assistance will likely flow into the economy to reduce the impact of layoffs and shutdowns. Such a commitment to use total government resources is unique with the exception of the spending to conduct World War II. As we have learned from the principles of Modern Monetary Theory, there is no limit as to how much the government can spend to alleviate the disruptions caused by the virus. It simply needs to be done. The current pending legislation to spend trillions of dollars on the crisis is a first step; and we expect more will be taken. Hopefully, we won’t let political partisanship derail the chance for a resolution.
The challenges being faced by every one of us are unprecedented. Yet given the amount of resources, resolve, and perseverance going into this fight, it is only a matter of time before the Virus War is won. Markets may remain volatile for the time being, but we look forward to when we all begin to see the light of victory.
Past performance does not guarantee future results.
Small-cap and mid-cap investments may have additional risk including greater price volatility. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. The information and opinions in this report have been prepared by the investment staff of PlanMember Securities Corporation. This report is based upon information available to the public.
The information herein is believed to be reliable and has been obtained from sources believed to be reliable, but PlanMember makes no representation as to the accuracy or completeness of such information.
Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss in declining markets.
International investing involves special risks such as currency fluctuation, lower liquidity, political and economic uncertainties, and differences in accounting standards. Risks of foreign investing are generally intensified for investments in emerging markets.