Is sustainable economic recovery possible before a COVID-19 vaccine is available? Chief Investment Officer Jim Lowell and Vice President Steve Johnson discussed what course economic recovery might take absent a vaccine in our recent quarterly webinar*—Take Your Pick: Recession or Recovery?
Please enjoy the excerpt below and click here for the full webinar replay to hear more.
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Steve Johnson: I’m going to answer this question like most economists and I’m going to say, “Yes, but…” And the reason why I say that is, we have already seen a sharp recovery from the March and April bottoms. So if you look at consumer spending, for example, it has been extremely resilient. In fact, the spending has recovered to year-ago levels in some cases.
However, when you look at that number, we know that we’re still seeing unemployment way above what is normal and it has really eclipsed past recessions. And in fact, most economists believe that we’ll see unemployment at 10% at the end of this year, so we have to build an understanding of what impact that could have on the economy, not just for the next six months, but for the next couple of years.
Before we get back to a 4% unemployment rate, we know there’s going to be real damage that’s being done to this economy. So it is going to take a number of years, we think, before we get back to a real robust economy.
And also, if you take into consideration the amount of money that we have spent, almost $11 trillion here on the relief package, understanding it has been worthwhile, but it will have an impact later on as we start to emerge.
Jim Lowell: To Steve’s point about there being hurdles, obstacles towards getting back to an economy that’s running on all cylinders, this [webinar] poll question is absolutely timely. It’s asking what our biggest concerns for the markets are right now.
The pandemic may or may not continue to rule the roost, but there are a host of other concerns. Recession, which we’ve talked briefly about. Inflation, stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. values, federal deficit, Washington politics, international conflicts, etc. Maybe some of you are not particularly concerned, but all of these hurdles stand in the way of any sort of smooth, seamless, rapid return to an economy that’s firing on all cylinders.
Not that the economy has to be firing on all cylinders to be able to make money inside of that recovery trajectory. Clearly, the last month and a half have been able to exhibit just that.
One of the things that we have always done at Adviser Investments is to take the discipline of diversificationA strategy for managing investment risk by investing in a mixture of different investments. Since different asset classes face different risks, even if one type of asset declines in value, others may not. seriously and deploy it throughout your portfolio to ensure that we’re able to not just manage the risksThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline., but also never take our eye off the potential for returns.
*Webinar recorded after the market closed on Wednesday, July 22, 2020.
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