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Read the latest Weekly Headings by CIO Larry Adam.

Key Takeaways

• Ultimate economic impact of COVID-19 still a ‘gray area’
• The Fed continues to color ‘outside the lines’
• Congress discussing another fiscal stimulus ‘masterpiece’

The phrase “a picture paints a thousand words” seems truer than ever as images of lockdowns flood our newsfeeds. From the eerie emptiness of Time Square to closed retailers, there is concrete evidence that all are doing their part to combat the outbreak. This influx of time spent indoors has led some to start overdue projects and others to revive old hobbies. With today being National Crayon Day, we wonder how many people have rediscovered their love for art as a creative way to pass time. With the uncertainty surrounding the economic impact of COVID-19, ‘giving color’ to our market views is as much ‘art’ as ‘science.’ Although ‘red’ was the predominant color of most asset class returns in Q1, the combination of policymaker actions and a societal commitment to defeat the virus will hopefully lead to ‘green’ pastures.

• ‘Black’ Swan Caused ‘Gray’ Areas For US Economy | Between robust consumer spending and a resilient labor market, there was no significant indicator signaling that the US economy would be unable to extend its record long expansion in 2020. However, the COVID-19 outbreak in China unexpectedly escalated into a global pandemic, with the US now at the epicenter. With the case count reaching the ~250,000 milestone, social distancing is in full swing (Washington Post survey suggesting 91% of Americans were “staying home as much as possible.”) Forecasting during an economic “black hole” is challenging. We know the data will be bad, but most markets have already begun pricing in the weakness. Until the duration and magnitude of the outbreak can be determined, the economic downturn will continue to be difficult to quantify. Our Healthcare Policy Analyst Chris Meekins estimates the US will likely “turn the corner” on the virus by Memorial Day (40% chance) or July 4 (80% chance), so we will be sharpening our pencils to determine when, not if, the US economy will start to rebound.
• Fed Action Is Not Out Of The ‘Blue’ | The Federal Reserve’s (Fed) proactive actions to bolster the economy and to assuage liquidity concerns should help avert the worst case scenario of a credit crisis and/or economic meltdown. Last week, Chair Powell remarked that the Fed’s ammunition was not low, and the decision to temporarily ease capital requirements for big banks this week was a testament to his statement. The Fed has continued to color ‘outside the lines’ using non-traditional monetary policy tools to address the needs of the lending markets as well as provide a level of comfort for municipalities, investment-grade corporations and consumers alike. For example, the decision to expand the scope of purchases to include mortgaged-backed securities has directly benefited homebuyers and homeowners looking to refinance. While the steps undertaken thus far have led the balance sheet to exceed $5.8 trillion, we believe the Fed will remain aggressive and lay the foundation for a solid rebound in growth during 2H20.
• Stimulus Seeks To Give Consumers The ‘Green’ Light | Although the virus must be contained before the economy can return to normality, Congress has passed record setting fiscal stimulus packages that will allow US consumers to feel secure during this time of uncertainty and confident once retailers reopen. The Phase 3 effort was a ‘work of art’ as it addressed the needs of the nation’s healthcare system, businesses of all size and households via direct aid and substantial loan allowances. For example, the $600 supplemental weekly unemployment benefit (on top of the regular benefit) allows the unemployed to receive an amount just above the average national weekly income level ($935). But the government’s actions may not stop here, as Phase 4 discussions are already underway. Potential components of this stimulus package include infrastructure spending to create jobs, hazard pay for frontline responders, additional debt relief for consumers and funds for “hotspot” cities. While Congress will not resume official discussions until after its recess on April 20, rest assured that staffers and party negotiators are behind the scenes creating another ‘masterpiece.’
• ‘White’ Flag May Be Waived On Oil Price War | If the COVID-19 pandemic did not cause enough market turmoil, the oil price war between Saudi Arabia and Russia certainly made matters worse. With global oil demand already weakening, the rampant spike in oil production led oil prices to test the $20/bbl for the first time since 2001. With his re-election prospects at stake, President Trump has remained motivated to curtail any impending threats to the US economy. With oil at prices unsustainable and unprofitable for the global industry, the president urged both sides to call for an OPEC+ meeting (occurring Monday), and hopefully call a truce. Despite lower fuel prices being supportive for the consumer, the current levels are detrimental to US producers and the removal of any uncertainty should help mitigate equity market volatility in the near term.

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All expressions of opinion reflect the judgment of Raymond James & Associates, Inc., and are subject to change. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Economic and market conditions are subject to change. Investing involves risk including the possible loss of capital. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. Past performance may not be indicative of future results.