On April 16, 2020, the CFA Institute presented a one-hour Webinar on the COVID-19 Pandemic and its potential impact on the economy. The Webinar is available for viewing and we highly recommend you make time given the high quality of the content.
Below is a link to the Webinar:
- Jack Ablin, CFA, Chief Investment Officer, Cresset Capital;
- Nicholas Colas, Co-Founder, DataTrek Research; and
- Meredith Sumpter, Head of Research Strategy and Operations, Eurasia Group.
Our summary of key observations follows:
Top Investor Concerns—Continued uncertainty on how the Coronavirus will play out and the resulting impact on economy at large and earnings and valuations. What will change permanently? How will different markets be impacted?
Significant But Varied Stimulus Actions—Fiscal and monetary stimulus in the U.S. at 35% of U.S. GDP. Global stimulus at 15% of GDP. Massive stimulus should reduce risk of U.S. S&P 500 retesting its recent lows. Small caps are much riskier and could break through prior lows. Much faster and more robust stimulus response from government compared to 2008 financial crisis. Emerging markets much less able to provide stimulus with many at 1% to 2% of GDP.
Current Status—Although definitions vary, economy may technically be in a depression. Time for recovery is unclear—due to the separate adverse impacts on supply as well as demand. Social distancing requirements may hamper a full return of the labor force to pre-Pandemic levels. Need a vaccine to quicken move to full recovery. Compared to the “Great Depression” policy, responses have been much more appropriate.
Employment—Government funded small business fund has capped out. Money must be used on workforce salaries for grant to be forgiven. The fund will bring millions of jobs back each of next two months. Unemployment rates will be cloudy in May and June 2020 due to government funding of jobs.
Supply Chains and Globalization—Not moving to full deglobalization but there is a move to onshore elements of some supply chains. Higher costs and lower earnings due to onshoring supply chains. Move from “just in time” to a “just in case” inventory model in some sectors.
Importance of Technology to Long-Term Outlooks—U.S and Asia/Pacific have better long-term outlooks relative to Europe due to their ability to develop new technologies. Technology has greater ability to cross borders.
Government Actions—If shutdown and social distancing are needed to slow the virus, stimulus actions are also needed. Policy will need to continue to evolve. Lots of fiscal policy is at state levels and states are facing challenges funding their budget deficits relative to Federal government.
Reopening the Economy—Key requirements to fully reopen the economy include expanded testing for immunity and getting a vaccine. U.K. SEIR model separates population into groups and deals with each group separately. Four groups include Susceptible, Exposed, Infected and Recovered. Tracking is also a key part of mitigation: Apple and Google are working on cellphone tracking software; in U.S., permission to track will need to be given. People will become more risk averse—save more, spend less. Assume less risk. Automation may increase given reduced virus-related risks. Big companies will fare better than small firms.
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