Risks and Opportunities of Investing though Covid-19

This is a summary of HK Financial Education Event “Global Economic Update During Covid-19”  hosted by Hillel Katzeff on June 25th, 2020 featuring Jeffrey Kleintop, Senior Vice President Global Strategist, Charles Schwab & Co., Inc. Where he talked about

Difficult to Make Predictions

We are six months into a pandemic that has been sweeping the globe. Although the nature of the virus is predictable, it has become unpredictable due to human behavior.

The recession of 2020 brought on by Covid-19 is unlike a garden variety recession. Usually structural excesses and dislocations in the economy can be remediated by measured fiscal and monetary policy. However, the virus is not under control making this situation unpredictable.  An effective vaccine would give a measure of certainty, but a prompt discovery and delivery seems unlikely anytime soon.

Watch the Death Rate

The performance of the broader US Stock market appears to be performing in an inverse relationship with Covid deaths. While positive infections have been going up at a record pace, the death rate has continued to decline. As a result, if the death rate begins to increase, it is reasonable to expect a stock market reversal.

Massive Stimulus

Governments around the world have collectively provided economic stimulus equivalent to 28% of GDP.  In the US, fiscal and monetary stimulus has been 43% of GDP.  Central banks have played their part and have come to the rescue.

Recession is Over or Will it be a Double Dip Recession

The bottom of the recession was in April and we are probably out of recession now, according to Jeffrey Kleintop.  There is always a possibility of a double dip recession if infections and deaths prevent the economy from fully restarting.

Hangover for the Massive Stimulus

With Trillions and Trillions of dollars following the shutdown that resulted in massive unemployment, there will inevitably come a day when the price will have to be paid.  If growth does not coming roaring back, the threat of latent inflation is a real possibility.

This graph shows inveersions and reversals internationally versus the U.S.

Stock Leadership Changes after a Yield Curve inversion

Heath Care and Tech Stocks have been the leaders over the last 10 years.  With the yield curve inversion in mid-2019 and the subsequent recession of 2020, a change in stock leadership to the next phase of the recovery seems likely.  Out of favor for a long time, strong candidates for a leadership role include: Value (vs Growth) and International (vs Domestic) Equities.

This graph shows inversions and reversals comparing growth versus value.

Expect Volatility

Need I say more about this?

Strategy and Opportunity

We all hope the next six months brings better news – but hope is not a strategy.  Goals based financial planning, asset allocation, re-balancing, tax-loss harvesting, using low cost ETFs is. Opportunity awaits.

What about the upcoming Presidential elections?  How do investors manage their portfolio in this low yield environment for income?  To find out answers to these questions and more, watch of the full HK Financial Education Event: Global Economic Update during Covid-19 below.