Cautious, Realistic, Hopeful
U.S. COVID-19 practices need improvement to gain control over spread of COVID-19
We have no choice but to rely heavily on fiscal and monetary policies to bridge the economy to normal
Investment conditions require a strategic allocation toward equities and opportunistic income
The U.S. and global economies are experiencing the most significant health and economic shock in decades. The consequences of COVID-19 require governments around the world to control the spread of the virus as well as stabilize the economic fallout. Each country has its own distinct history, culture and priorities. Countries like South Korea, Japan and China that have dealt with previous viruses like SARS, MERS and H1N1 have experience that has enabled them to handle this COVID-19 situation rather well. The U.S. and European countries are learning as they go, with activities like reopening too early being adjusted as cases rise.
We believe COVID-19 will be here until there is a vaccine, probably a 2021 outcome. Therefore, governments worldwide will have continuing battles with new cases. We all hope each country develops a set of proven practices that gives people confidence to gradually trend their behaviors toward normal. But normal is quite some time away.
The U.S. is forging its own path on dealing with COVID-19, but some large city comparisons indicate how we are doing relative to Asian countries: Tokyo -- 325 deaths, population 14 million; Seoul, South Korea -- 282 deaths, population 9.8 million; New York City -- 31,137 deaths, population 8.3 million.
While U.S. culture and norms are fundamentally different from those of Asian countries, how successfully we address COVID-19 going forward will ultimately determine how confident individuals will be in resuming normal activities.
At present, the U.S. government and state governments are in control, in terms of economic support and health policies. There are three primary implications of government controlling substantial parts of U.S. society and the economy:
- The federal and state governments are trying to determine the optimum practices and protocols for a healthy return to normal.
- The economy is highly dependent upon continued fiscal and monetary support.
- Interest rates are being held at historically low levels to alleviate borrower debt payments and make consumption easier.
We believe equity markets are looking past the decline in 2020 earnings and focusing entirely on 2021 results. Based on our best estimate, we anticipate a strong rebound in 2021 earnings, which supports present market price levels. Although valuations are at the upper end of historical ranges, they are justified by very low interest rates and the assumption that in 2021 the economy will achieve 90-95% of 2019 earnings.
We are sanguine about the U.S. economy, and we believe that our nation’s resiliency will overcome the many challenges we are all facing.