Gill Capital Partners March 24, 2020 Market Update
Typically, we send out monthly communications, and while we do not want to overwhelm your inbox with emails, we do want to keep you informed as new information becomes available, as these are truly unprecedented times. Therefore, we will likely be sending communications more frequently for the foreseeable future with updates, key information, policy changes, and our views as they continue to evolve.
Everything but the Kitchen Sink (Lets Throw That In, Too)
“The Depression was about the Fed moving too slowly,” said Neil Dutta, head of economics at Renaissance Macro Research in New York. “We are seeing a lot of things today. But, a slow moving Fed hasn’t been one of them. That’s encouraging.”
On Monday, the Fed unveiled its most extensive monetary stimulus program to date. It includes a massive second wave of initiatives, including a promise that the Federal Reserve will purchase an unlimited amount of bonds to keep borrowing costs low, as well as new programs to ensure credit flows to corporations and state and local governments. The Fed will buy Treasuries and agency mortgage-backed securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy,” and will also buy agency commercial mortgage-backed securities, according to a statement. For the first time ever, the Fed’s buying has extended beyond individual securities, and now includes fixed income ETFs as well. Yes, the proverbial gloves have come off….
On the fiscal stimulus side, Congress is said to be nearing a massive stimulus bill in the $2.5 trillion range. It will likely include direct aid to struggling businesses, expansion of unemployment benefits and, potentially, direct aid to individuals. Sensing that this massive bill is near, markets rallied significantly on Tuesday, with the Dow Jones up 2,100 points, just over 11%. We do not know if this is the bottom or just a relief rally in anticipation of massive government stimulus, but clearly the market likes the level and type of stimulus package that is currently being put together by the Federal Reserve, the Treasury Department and Congress.
Is this level of stimulus necessary? Updated GDP and employment forecasts are coming in, and the numbers are not pretty. As shown below, second quarter GDP and unemployment forecasts are potentially going to be some of the worst on record.
While the government may not be able to fix the health crisis or end the coronavirus pandemic, they are clearly firing an economic bazooka of liquidity and support in an attempt to mitigate the damage.
In recent days we have seen volatility in fixed income investments more in line with what would be expected from equities and have received questions as to why this is happening. While most core, high-quality fixed income has held its ground nicely, we have seen days where even the highest quality fixed income investments have fallen. This has been a byproduct of broad-based selling across all asset classes rather than an issue with the credit quality of bonds. Mutual funds have seen substantial liquidations, flooding the market with bonds. We are watching this situation closely, but currently believe this creates more of an opportunity to buy than a reason to sell.
Funny/Interesting Quote of the Day
“This is the first time in human history that we can save the human race by lying in front of the T.V. and doing nothing…. Lets not screw this up.” - Poet unknown
As always, please let us know if you have any question or concerns, or if we can provide assistance with any other financial planning matters including education, taxes, insurance or estate needs.