Although the US economy has come back a bit from the early days of the Covid-19 recession, it has a way to go. It is time to consider your investments and the US economy. How long will the Covid-19 pandemic last? Will central banks and governments continue to support credit and send stimulus payments? And, how will the combination of virus-induced recession, recovery measures and the state of the US economy affect your investments?
Investing During a Long Recession
Although things look better than they did when the virus first shut down the world economy, there is a long way to go to a complete recovery. The International Monetary Fund predicts only partial and uneven economic recovery into 2021. They note that things have not gotten worse because of “extraordinary” measures taken.
We have reached this point, largely because of extraordinary policy measures that put a floor under the world economy. Governments have provided around $12 trillion in fiscal support to households and firms. And unprecedented monetary policy actions have maintained the flow of credit, helping millions of firms to stay in business.
The four key measures that will be necessary to sustain and propel a recovery going forward are these:
Continuing the fight against Covid-19
Avoiding a premature drawback in stimulus measures
Institution of forward-thinking economic policies
Support of indebted countries, states, and municipalities
The relationship between your investments and the US economy will depend largely on how successful the fight is going forward.
Federal Stimulus Measures and Your Investments
Market Watch looks at the US economy and sees a risk of a setback.
The U.S. likely grew at a record 30%-plus annual pace in the third quarter, recovering much of the historic damage caused by the coronavirus pandemic in the spring.
But, many are worried.
Many are increasingly worried the economy will suffer another lapse, pointing to a fresh round of corporate layoffs and an uptick in coronavirus cases just as the fall flu season gets underway. A slew of companies led by Disney DIS, -0.85%, American Airlines AAL, 1.15% and others have said they will cut thousands of jobs without any more aid.
Consumer spending, the lifeblood of the economy, would be in danger of faltering again if unemployment rises or people are prevented by the virus from going back to work, they say. And if consumer spending goes, so does the economy.
The initial stimulus payments, combined with historic efforts by the Federal Reserve, rescued the US economy from falling into the abyss. But, political gridlock has stalled any further help just as parts of the economy have begun to falter.
While congress dithers, the Fed and a whole host of economists have joined the chorus of those suggesting more stimulus payments. If, nothing happens during this term of congress, will there be help in the next? And, how will your investments and the US economy do in the meantime?
Intrinsic Value of Your Investments
We return again and again to the use of the intrinsic value calculation as a guide to rational and successful investing. Consumer spending is at the base of the intrinsic value pyramid. When there is money to spend it helps build the investment pyramid and when there is no money to spend the pyramid crumbles. Our expectation is that the next administration and congress will embrace a robust infrastructure program in the USA. This will drive the US economy and your investments. What happens before next year is anyone’s guess as a lame duck president and senate may or may not do anything to help the economy and your portfolio.
In the meantime, be careful with over-priced stocks at a time when the market could take another hit before heading back up.
Your Investments and the US Economy – Slideshare Version