By David Bailin
Chief Investment Officer
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We believe significant negative and positive economic swings are likely within 2020 based on closures and re-openings due to the virus.
While the news on infections and hospitalizations will worsen, we do not expect massive economic closures across the US at large. We do expect that re-hiring rates will slow down and services spending will fail to rebound to the extent that it might have previously. As we noted last week, markets are likely to be much more volatile until we see the true end of the first wave virus impacts in the US.
The rapid rise of the virus and the resultant slowdown in the pace of recovery may call policy makers to action. We think the likelihood of a further fiscal package from Washington, DC rises with the level of Phase 1 infections.
Banking on recovery: The Federal Reserve released the results of its “annual” Dodd Frank Act Stress Tests that provided a clear, positive assessment of the health and safety of the US banking system. The day before releasing these results, the Federal Reserve announced a roll-back of certain parts of the Volcker Rule. Banks would again be allowed to make proprietary investments in venture capital and be able to acquire ownership interests in hedge funds and private equity funds.
In spite of the strong assessment of bank balance sheets and regulatory capital, the Federal Reserve also took actions to remind bank management that they were going to remain under scrutiny until the pandemic and its economic impacts were behind us. Nonetheless, with banks the second worst performing industry group this year, we expect their shares to be beneficiaries once a sustained economic recovery takes shape.
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