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INVESTMENT STRATEGY QUARTERLY

Letter from the Chief Investment Officer

A Journey through the Unknown

The COVID-19 outbreak has led to unprecedented volatility and tremendous declines in wealth, but we have faith
that once the pandemic is defeated, the wild swings in the financial markets will abate and prosperity will return.
But what cannot be so easily recovered is the loss of a job, the loss of a business, or, worst of all, the loss of a loved
one. While it is our duty to provide timely market insights, please know that now, more than ever, the health and
safety of you and your families is at the forefront of our minds.

The Hubble Space Telescope celebrates its 30th anniversary this hole, our Healthcare Policy Analyst, Chris Meekins, assigns a 54% and
month. As the first major optical telescope soaring through space, its 80% probability to the US starting to “turn the corner,” or realising the
vitality in astronomical discoveries earned it the nickname “window true scope of the health crisis and resuming our normal activities, by
on the universe.” Since its launch in 1990, its discoveries have Memorial Day (25th May) and the Fourth of July, respectively. If this
redefined our knowledge of the universe – from its estimated age proves prescient, the US economy would likely experience a robust
(~13.7 billion years old) to the two moons circling Pluto. Its ability to rebound during the second half of the year, especially if policymakers
capture clear, concise photographs is due to its location beyond continue to exhibit a “by any means necessary” approach to defeat
Earth’s atmosphere, where it is unencumbered by clouds and this virus.
turbulence. The traveling telescope is an excellent metaphor for our Mitigating this downside risk to the economy is the beaming up of
investment strategy journey, as we seek to provide clear, concise policymaker response. In the United States, the Federal Reserve
views in a world of incessant change and increasing complexities. (Fed) has been and will remain proactive. Even after implementing
Not getting fixated on the daily headlines and approaching two inter-meeting interest rate cuts – action only taken once in a
investments with a long-term view in mind can help avoid panic blue moon – to reduce interest rates to zero and once again
driven portfolio decisions.
employing massive trillion dollar facilities, the Fed is still exploring
The emergence of the coronavirus as a global pandemic was a ‘Black ways to make sure the gravity of the situation does not cause the
Swan’ event outside anyone’s scope. Its discovery clouded the near- lending markets to function inefficiently. But the Fed is not alone,
term economic outlook and created unparalleled market turbulence. evidenced by the all hands on deck effort by central banks around
As this unprecedented event unfolds, it is our responsibility to bring the world similarly easing in a synchronised fashion. Over the last six
uncertainties into focus and provide pragmatic, insightful views to months, almost 80% of central banks have eased policy rates – the
assist you in navigating your portfolio during this historically highest level since the Great Recession. In fact, the average policy rate
challenging time. amongst the four largest central banks (the Fed, the European
When it comes to the economy – Houston, we have a temporary Central Bank, the Bank of England, and the Bank of Japan) has fallen
problem. The COVID-19 outbreak and its negative economic impact into negative territory and set a new historic low. While these
are difficult to discern given the inability to determine the number of measures cannot cure the health crisis, they should help boost
people infected, the transmission rate, and the longevity of the confidence and support a rebound in growth over the medium to
spread. But one thing remains clear – consumer spending is longer term.
collapsing at a record pace due to the necessity for social distancing And this has been supplemented by record-setting government
– the avoidance of restaurants, cinemas, tourism and spectator stimulus packages that will put money into the hands of consumers,
events. Already, many thousands of retail stores have shut their small businesses and distressed industries in hopes of easing the
doors, multiple sports have suspended their seasons, and over 515 economic impact of the virus. If the economy continues to struggle,
million students have been impacted by school closings worldwide. we do not rule out additional phases of fiscal stimulus.
With consumer spending, which represents up to 70% of a developed With fear driving demand for bonds, yields moving higher will
market economy, contracting rapidly and likely remaining continue to exhibit a failure to launch scenario. Uncertainty
constrained for the next few months, a temporary virus-induced surrounding the duration and magnitude of the virus fuelled a flight
recession seems unavoidable. With spending in an interim black
to safety mission that pushed the entire US Treasury yield curve

Investment Strategy Quarterly is intended to communicate current economic and capital market information along with the informed perspectives of our investment
professionals. You may contact your financial advisor to discuss the content of this publication in the context of your own unique circumstances. Published April 2020.
Material prepared by Raymond James as a resource for its wealth managers.

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