In the April issue of our monthly flagship publication, we feature:

  • On the Record by Chief Investment Officer Tony Roth, where he sets out the COVID-19-induced market and economic challenges we face: a uniquely devastating recession and oil price collapse—whose effects will hopefully be somewhat cushioned by stimulus on steroids.
  • In Focus by Chief Economist Luke Tilley takes our scenario analysis up a notch, modeling the degree of viral mitigation efforts and the timeframes those restrictions could remain in place to determine the various potential economic outcomes.
  • Investment positioning and taxable fixed income asset class overview.

It is with no sense of reluctance that we turn the page of the calendar to the second quarter of 2020—the ninth-worst quarterly price return for the stock market (S&P 500) dating back to 1926. Unfortunately, any sense of solace from crossing into a new calendar quarter is clouded by the expectation that the situation is likely to get worse before it gets better. This includes the global health impact, the economy, and the financial markets alike. The road ahead will be rocky, but in time this crisis too shall pass. We continue to manage client portfolios according to our core investment tenets— in particular, a focus on economics first in the search for long-term opportunities.

Focusing specifically on portfolios, we believe that markets are still not pricing in the duration of the economic dislocation that we fear lies before us. While the near-term national focus has been on cresting the health care peak of this first wave of the disease, it will soon shift to the conditions necessary to re-engage our national economy. We expect to learn over the coming months that restarting will be a messy affair, proceeding in fits and starts and not culminating in an economy operating at capacity for many calendar quarters. And this notwithstanding the truly impressive fiscal and monetary intervention that has for the moment worked to stabilize markets and provide a historic backstop for American workers and small businesses.

Consider today’s environment, where we find ourselves in uncharted territory on several fronts:

  • A uniquely devastating recession. No two economic expansions end for exactly the same reasons, and no two recessions follow the same playbook, but the current economic contraction is particularly unique. A global economic shutdown has been almost simultaneously constructed by policymakers to mitigate the exogenous shock of the COVID-19 pandemic. Never before have we experienced such an abrupt, widespread halting of global economic activity. Without the typical, “organic” business cycle dynamics at play, the historical recession playbook is not as useful this time around.
  • Stimulus on steroids. The response from global policymakers, both central bankers and government officials alike, has been the most rapid and powerful deployment of support for the economy and markets that we’ve ever seen. Only time will tell if it was enough (and that is not to say either the Federal Reserve or Congress is necessarily done), but no one can fault American policymakers for sitting on their hands during the onset of this crisis.
  • Oil price collapse. At the very moment that global thirst for petroleum experienced an unmatched demand shock, the OPEC+ cartel essentially collapsed in parallel, creating an abundance of supply at the worst time possible. With storage options spilling over, some producers are literally paying downstream consumers to take the crude off their hands.

Please see important disclosures at the end of the article.

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