Page 8 - Investment Outlook

United States
‘Fiscal support is costly, but worth it, if it helps avoid long-term economic damage and leaves us with a stronger recovery’.
So far, the USA has lost 102,957 people to Covid-19 and these numbers are expected to rise to over 200,000 by August.
This is the largest death rate of any country. Questions are bound to be asked about public policy and access to health care. One further depressing statistic is that 38.6 million Americans filed for unemployment benefits in April and
May due to job cuts and the lack of a furloughing scheme. This is almost 25% of the US workforce. As an indication of how severe these job loss numbers are, it took two years after the 2008 great financial crisis to make 8 million Americans unemployed.
The US Federal Reserve launched a programme of US$700bn worth of quantitative easing aimed at buying US Treasuries and municipal bonds. The Fed also cut interest rates to 0%-0.25%. The US Senate has passed stimulus and aid packages to the value of US$5tr which includes direct payments of US$1000 to every US household as well as assistance for businesses and increases to unemployment benefits.
We have been encouraged by the extent of market stability in credit markets that the Federal Reserve
has offered. The Fed has expanded its bond purchasing programme not only to buy up US Treasury bonds, but also investment grade corporate bonds and high-yielding grade corporate bonds. The Fed helped support the high-yield sub-investment grade bond market by allowing its asset purchase programme to buy the bonds of so called ‘fallen angels’. Fallen angels are bonds that were recently trading as investment grade but have subsequently been downgraded to the high yield sector. This has created an easing of concerns over the liquidity available in the high-yield market to absorb fallen angels with significant amounts of debt.
The Fed allocated US$850bn to buy up all forms of credit including, credit card debt, car loans, student debt and commercial mortgages in order to stem bankruptcies. It is their broad and assured interventions that has underpinned confidence in credit markets and hence equity markets during these exceptionally difficult times. The Fed also reassured markets that the lower band for interest rates would remain at zero until the economy was back “on track”.
As US policymakers weigh the next stage of stimulus to bolster their faltering economy, Federal Reserve chairman Jerome Powell has warned that the economic path ahead is still highly uncertain with
ESTATE CAPITAL INVESTMENT OUTLOOK
7 EDITION 33 Summer & Autumn 2020