It is over 18 months since a once in a century pandemic began. This is a perfect opportunity to take a step back, reflect and examine what lessons can be learned about the markets, and how best to be positioned for the future.
The mobilization of scientific resources globally to find immunization solutions has been nothing short of extraordinary. Pfizer/BioNtech, Moderna & Oxford/AstraZeneca took just 11 months to develop a vaccine since the World Health Organization first declared a clustering of pneumonia cases in China. So far, over 4.65 billion shots have been given, fully vaccinating over 30% of the global population.
Wealthy countries are getting vaccinated at a much higher rate than poorer countries. Global travel, which until recently has been largely closed, has been significantly impacted. International tourist arrivals are down 85% from pre-pandemic days. Roughly 1/3rd of the world’s borders remain closed. Many of those remaining are only open to those who have been vaccinated or can afford tests.
The IMF estimates the world economy shrank by 3.5% in GDP, however, they estimate growth of 6% in 2021 & 4.4% in 2022. Fiscal stimulus measures in the face of Covid as % of GDP in the world’s major economies were as follows: Japan 56%, Germany 39%, Italy 38% and the US 26% – just to list the top 4.
Quantitative easing with the world’s major central banks started aggressively in March 2020 & largely continues at the same rate more than 18 months later. Leading the way, the Federal reserve balance sheet increased from mid-March 2020 to Dec. 2020 between $3.9 trillion to $6.6 trillion.
The Fed continues buying bonds to the tune of $80 billion in Treasuries & $40 billion in residential & commercial Mortgage-Backed-Securities (MBS). The Fed also cut the interest rate to 0-0.25%.
Due to these unprecedented fiscal & monetary stimulus measures from major governments & central banks, the equities bear market which started in March 2020 was short-lived. The recovery was swift as we passed pre-Covid equity market highs, from the depths reached on March 23rd, during late August 2020.
Becoming emotional in a downturn can lead to costly mistakes that could take years to recover. It’s important to be focused on the long term and not be overly concerned with short to medium term market drawdowns.
Current inflation being seen is at least transitory if not more secular in nature. If the 2nd half of the year continues at the same pace it will be the highest annual inflation being seen since the 1980s.
While equities have shown some concern on these inflation numbers, bonds & gold have not shared a similar concern. Balanced portfolios across asset classes remain the most robust and resilient approach to investing for the long run. Matching these portfolios to suitable risk-levels remains the best antidote to weather any storms that may lie ahead.