The reopening of the global economy, optimism regarding potential COVID-19 health solutions, and a firm commitment from policymakers to do whatever it takes have bolstered current market sentiment.
As 2020 grinds on, investors will be forced to reconcile the rally in risk assets with the deterioration in fundamentals.
The past several months have been consumed by COVID-19. The global pandemic has literally and figuratively infected every aspect of our daily life. It has left a permanent imprint on the way we think about our health, finances, politics and social interactions. COVID-19 has not only changed the way we live, work and play, but it has exposed fragile cracks in today’s global economy while simultaneously unveiling some durable strengths that lie beyond the pandemic’s reach.
In time, human resiliency, ingenuity and focus will conquer the COVID-19 pandemic. However, it has already altered the course of history. Regrettably, there is no return to normal. Similar to past crises and pandemics, we’ll experience a tricky transition to a new environment. As the first half of 2020 concludes and the second half begins, the great reset is firmly underway. For investors, this rebirth presents both big risks and considerable opportunities.
The pandemic’s powerful impacts stretch well beyond the health challenges. Despite mounting job losses, plummeting corporate profits and disastrous economic data, miraculously, markets have rallied sharply since hitting their lows on March 23. Massive fiscal and monetary policy responses have aided the unexpected rebound in risk assets. Typically reliable inputs into the investment decision-making process have been rendered useless by COVID-19, leaving many investors baffled. The highly anticipated US election has become an afterthought in the wake of the pandemic.
In the short term, market sentiment has been bolstered by the reopening of the global economy, optimism regarding potential health solutions to COVID-19 and a firm commitment from policymakers to do whatever it takes. But, make no mistake about it, this temporary reprieve from fundamentals driving asset prices will likely end soon.
As 2020 grinds on, investors will be forced to reconcile the rally in risk assets with the deterioration in fundamentals. Without an economic recovery (regardless of which letter of the alphabet it most resembles), a breakthrough on corporate profits and a reversal of job losses, it will be difficult for risk assets to continue their momentum. And as November’s US election draws closer, political headlines will again take center stage, likely generating further market-moving volatility.
Adding to this challenging environment, interest rates at extreme lows make it nearly impossible for investors to generate much-needed income by using traditionally low-risk investments. Adopting a total return mindset while thoughtfully investing alongside a deep-pocketed buyer like the Federal Reserve that doesn’t care about prices or crumbling fundamentals may provide fixed income investors some comfort.
Investors with courage, capital and conviction should look beyond the turmoil created by the COVID-19 outbreak during the first half of 2020. Life as we know it has changed forever. However, this new environment also presents opportunities for innovative businesses to adapt and potentially thrive in the post-pandemic environment. Looking beyond the borders of the United States and further down the market capitalization spectrum may also reveal some interesting relative value opportunities.
As economies reopen and we look ahead to better days, investors should consider the following three themes when building portfolios in the post-pandemic environment:
The views expressed are the views of Michael Arone as of May 26, 2020, and are subject to change based on market and other conditions. The opinions expressed may differ from those with different investment philosophies. The information provided does not constitute investment advice and it should not be relied on as such. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon.
ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns.
Standard & Poor's®, S&P® and SPDR® are registered trademarks of Standard & Poor's Financial Services LLC (S&P); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC (SPDJI) and sublicensed for certain purposes by State Street Corporation. State Street Corporation's financial products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and third party licensors and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability in relation thereto, including for any errors, omissions, or interruptions of any index.
Distributor: State Street Global Advisors Funds Distributors, LLC, member FINRA, SIPC, an indirect wholly owned subsidiary of State Street Corporation. References to State Street may include State Street Corporation and its affiliates. Certain State Street affiliates provide services and receive fees from the SPDR ETFs. ALPS Distributors, Inc., member FINRA, is the distributor for DIA, MDY and SPY, all unit investment trusts. ALPS Portfolio Solutions Distributor, Inc., member FINRA, is the distributor for Select Sector SPDRs. ALPS Distributors, Inc. and ALPS Portfolio Solutions Distributor, Inc. are not affiliated with State Street Global Advisors Funds Distributors, LLC.
THIS SITE IS INTENDED FOR QUALIFIED INVESTORS ONLY.
No Offer/Local Restrictions
Nothing contained in or on the Site should be construed as a solicitation of an offer to buy or offer, or recommendation, to acquire or dispose of any security, commodity, investment or to engage in any other transaction. SSGA Intermediary Business offers a number of products and services designed specifically for various categories of investors. Not all products will be available to all investors. The information provided on the Site is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.
All persons and entities accessing the Site do so on their own initiative and are responsible for compliance with applicable local laws and regulations. The Site is not directed to any person in any jurisdiction where the publication or availability of the Site is prohibited, by reason of that person's nationality, residence or otherwise. Persons under these restrictions must not access the Site.
Information for Non-U.S. Investors:
The products and services described on this web site are intended to be made available only to persons in the United States or as otherwise qualified and permissible under local law. The information on this web site is only for such persons. Nothing on this web site shall be considered a solicitation to buy or an offer to sell a security to any person in any jurisdiction where such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction.
Before investing, consider the funds' investment objectives, risks, charges and expenses. To obtain a prospectus or summary prospectus which contains this and other information, call 1-866-787-2257, download a prospectus or summary prospectus now, or talk to your financial advisor. Read it carefully before investing.
Not FDIC Insured * No Bank Guarantee * May Lose Value