In response to the resulting market disorder, the U.S. Federal Reserve and other leading central banks have moved with a forcefulness that we find commendable.

Market Perspectives

Transcript

KEVIN:
Hi, I’m Kevin Barr, Head of SEI’s Investment Management Unit. I’ve asked Jim Solloway, Chief Market Strategist and Senior Portfolio Manager in SEI’s Portfolio Strategies Group, to join me today. Jim I’d like to start with your thoughts on the current state of the global economy.

JIM:
Thanks Kevin. The sudden and widespread stop in economic activity brought about by COVID-19’s spread is something that has never been experienced on such a scale in our lifetime. 

In response to the resulting market disorder, the U.S. Federal Reserve and other leading central banks have moved with a forcefulness that we find commendable.

The fiscal response has also unfolded with a speed and decisiveness that has seldom been seen. The U.S. Congress has passed into law a fiscal response that should top 10% of gross domestic product. 

KEVIN:
Despite the central bank action, stock prices have fallen hard.

JIM: 
Financial markets have been forced to recalibrate prices sharply as expectations about different industries and the overall economy shift at a breakneck pace.

Investors, though, should gain some reassurance from the fact that the economic recession and accompanying collapse in earnings is only expected to last a couple quarters. In the meantime, governments in the U.S. and elsewhere will do all they can to support their economies and ensure the smooth functioning of the financial markets.

KEVIN:
So what are you thinking in terms of recovery?

JIM:
Only time will tell whether markets have sufficiently discounted the pain that lies immediately ahead. We have to be prepared to see earnings come down hard–maybe 40%-to-50% on a year-over-year basis–in the next two quarters. As the economy ramps back up, profits should rebound dramatically.

If market prices are based on investors’ long-term, multi-year expectations, then this near-term fallout should represent a relatively small part of the market’s forward-looking focus.

KEVIN:
Despite the extraordinary magnitude of the drop in economic activity, do you think the depth and duration of the stock market’s pullback will look more like those of a typical recession?

JIM:
While the cause of the economic disruption is certainly unusual, particularly for those in developed countries, it’s worth remembering that significant market drawdowns are fairly common in equity markets, as are the eventual recoveries.

If there is a belief that the fiscal and monetary measures taken in recent weeks will successfully prop up the global economy, then markets should prove resilient. Months before the recession ends, investors will likely begin to bid stock prices sustainably higher in anticipation of an economic recovery, as they almost always do.

KEVIN:
Do you think this environment is a good time for active management?

JIM:
I do. Keep in mind that we favor a strategic, long-term approach to investing. We encourage investors to stay diversified and avoid short-term trading in these volatile markets. You hear our team express the opinion again and again that buying and selling during a time of intense uncertainty is not a good way to manage a portfolio. 

At SEI, we are sticking to our view that diversification is a sound approach in bull markets and bear markets. We believe in patience and remain confident that markets will eventually recover.

KEVIN:
Thank you, and stay safe.

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Disclosure:
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice. This information is for educational purposes only.

There are risks involved with investing, including loss of principal. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.

Information provided by SEI Investments Management Corporation, a wholly owned subsidiary of SEI Investments Company.