Where We Stand in the Midst of Covid-19
- April 23, 2020
John Stoltzfus, Chief Investment Strategist at Oppenheimer Asset Management, Inc., explains his top-down view of markets, the economy and asset allocation.
Economic Growth
Covid-19 challenges near-term growth projections. Social distancing and sheltering in place has led to shutdowns expected to hamper growth in the first half of 2020. We may see a third-quarter rebound as the virus peaks and monetary policy, fiscal stimulus and financial aid kick in.
Current View: Neutral
Equities
Volatility should ease as the outbreak is met with greater efficacy. Business rescue programs, monetary policy and fiscal stimulus should stabilize markets and foster sustainable rallies as economic green shoots reemerge. We suspended our price target until volatility abates.
Current View: Positive
Fixed Income
The U.S. bond market is expected to benefit from support from the Federal Reserve. Bond yields are likely to remain near historical lows, which should create liquidity for bond investors and improve the relative attractiveness of equities and real assets.
Current View: Neutral
Inflation
Covid-19 has proven to be disinflationary for the global economy. For now, the challenge for global central banks will be to counter disinflationary (and deflationary) pressures stemming from economic shutdowns and disruptions to businesses and employment.
Current View: Positive
Employment
After record employment levels in 2019, we’re now likely to see record-high unemployment with a potential “back to work” resurgence in the third quarter. Meantime, massive rescue programs for businesses and the unemployed should provide transitional support.
Current View: Neutral
Oil
An agreement to limit OPEC production in mid-April 2020 should provide support to the energy sector in the face of a steep drop in demand as Covid-19 shutdowns persist. As economic growth returns, oil prices may return to pre-outbreak levels.
Current View: Negative
Currencies
We expect the unprecedented levels of economic stimulus and rescue spending to soften the strength of the U.S. dollar even as it remains a safe harbor currency during the Covid-19 crisis.
Current View: Neutral
Monetary Policy
The Fed’s unprecedented support for the U.S. economy remains a key underpinning for financial and real assets.
Current View: Positive
Public Policy
Stimulus and economic rescue policy spending likely to increase even further with a potential for higher infrastructure outlays.
Current View: Neutral
International Markets
We expect international markets to follow the U.S. in a global economic recovery in time as the Covid-19 virus’ grip on the world subsides.
Current View: Positive
Keys to Allocation
We advocate combining individual securities and actively managed portfolios around a core of other broadly diversified and strategically allocated investments.
We favor exposure across large-, mid- and small- cap equities when making stock- and sector-specific allocations as global markets remain prone to frequent rotation and rebalancing.
Understanding how different investments interact with each other and how they behave in certain market environments is critical for investors to help achieve their long-term investment goals.
Sector Views
Rating: Outperform
Rationale: Broad-based innovation wave, net cash and low debt. New technologies to boost productivity across sectors.
Rating: Outperform
Rationale: Low deposit rates, high credit-card rates and a lucrative fee regime support earnings growth, especially at well-capitalized big banks.
Rating: Perform
Rationale: Covid-19 elevates focus on health care. Longer-term fundamentals remain intact for pharma and biotech.
Rating: Outperform
Rationale: Commerce capability in a social-distancing, shelter-in-place world. The virus presents both risks and opportunities with winners and losers.
Rating: Outperform
Rationale: Infrastructure program likely in the offing, which will benefit the sector.
Rating: Perform
Rationale: This defensive sector benefits from Covid-19-related demand surge.
Rating: Underperform
Rationale: Dramatic drop-off in demand related to Covid-19 shutdowns worldwide has a produced a glut that illustrates vulnerabilities within the sector.
Rating: Underperform
Rationale: Attractive yields, regulatory support should prop up utilities even as reduced economic activity dents earnings.
Rating: Perform
Rationale: Negative impact of Covid-19 on commercial and residential subsectors present near and longer term risk.
Rating: Perform
Rationale: Sector likely to be major beneficiary as global growth reasserts when Covid-19 risk subsides.
Rating: Perform
Rationale: Fierce price competition between dominant players and rising cost of content offset by increased demand for streaming services amid Covid-19 crisis.
Reach out to your Oppenheimer Financial Advisor if you have any questions.
Disclosure
Opinions are subject to change without notice. Information and statistical data were obtained from sources we believe to be reliable. Past performance is not a guarantee of future results. OAM Consulting is a division of Oppenheimer Asset Management Inc. (OAM). OAM is an indirect, wholly owned subsidiary of Oppenheimer Holdings Inc., which also indirectly wholly owns Oppenheimer & Co. Inc. (Oppenheimer), a registered broker dealer and investment adviser. Securities are offered through Oppenheimer. For information about the advisory programs available through OAM and Oppenheimer, please contact your Oppenheimer financial advisor for a copy of each firm’s ADV Part 2A. Investing in securities entails risk, including loss of principal. 2025434.10