Investors will still need to invest, and stocks will have to compete with bonds. With interest rates very low and seemingly low for some time into the future, the stock market could very well see a significant multiple expansion. Obviously, it’s not guaranteed but still an attractive scenario.
As the Fed increases its balance sheet, a big part of the money that it prints is likely to end up going into the stock market. So far, the Fed has committed over $4 trillion to stimulus to date.
The U.S. economy is about 70% consumer based. When the virus has run its initial course, consumers will produce never before seen pent-up demand for traveling, eating at restaurants, going shopping, going to the movies, etc. All that activity should help stocks.
In addition, the consumer will most likely enjoy lower gas prices and lower interest rates for some time. The resulting savings could certainly be used to buy goods and services or invest which will have positive effects on stocks.
I don’t think it’s a stretch to say the world will change and work from home will become a part of every business that can do so. With that, the consumer could potentially have significantly lower expenses - less car related expenses and work clothing related expenses for example. These lower expenses could also lead to higher spending in other areas and will help some stocks.
There will be a reconfiguration of supply chains and more diversification which will mean more capital spending on the part of businesses.
By the time the coronavirus is defeated, there may be unprecedented monetary stimulus. We are already seeing how the U.S. government is spending money. Some workers will get
more in unemployment insurance than they were making in their jobs, retirees who suffered no losses due to the coronavirus are getting stimulus checks, many businesses are taking advantage of the programs meant for small businesses, and so on. Ultimately, a part of this money will flow into the stock market.
With interest rates so low, many retirees will be forced into the stock market to generate income for living expenses.
Of course, not all business nor stocks will benefit or benefit equally. Stock selection and investment selection is probably more important than ever.
Having the vision to see the other side of this tragedy could, in my opinion, make some people and companies very wealthy.
Past performance is no guarantee of future results. Investing involves risk and the potential to lose principal.
This material represents an assessment of the market environment as of April 20, 2020. This is not to be considered investment or financial advice or a specific recommendation of any kind. Opinions and forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Actual results could differ materially from those
anticipated. Please consult your financial advisor before making financial decisions. (04/20)