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Credits: Pixabay

Adjusting to Seismic Shifts

In the blink of an eye the coronavirus has fundamentally changed our world in more ways than we can imagine. While it seems like an eternity ago, it only has been a matter of days since Pennsylvania Governor Tom Wolf issued his first stay-at-home order for a few counties in the state.

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Figure 1: A 50-fold increase in jobless claims

Government loosens its purse strings

So, what exactly has the government done to address the economic and financial fallout from social distancing measures? Well, in response to and anticipation of further virus mitigation efforts, the government has taken unprecedent actions to shore up the economy. For instance, on March 27, Congress passed the Coronavirus Aid, Relief, and Economic Security (or CARES) Act. This fiscal stimulus package provides more than $2 trillion in aid to individuals and businesses of all sizes and across the United States.

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Figure 2: The government will borrow $2 trillion to support households and businesses

Fed pulls out all the stops

Now on the monetary side, the Federal Reserve has pulled out all the stops to support the proper functioning of the financial system and carry out its dual mandate of price stability and full employment. Put a different way, the Fed today is doing everything it can to support the financial system (and the economy) like it did back in 2008. In reality, under Jay Powell, the Fed is doing much more than it did a decade ago when Ben Bernanke was at the helm.

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Figure 3: Fed Assets Up Over $2 Trillion in Less Than 7 Months

A “V” shaped recovery not likely in the cards

So how do these measures relate to economic expectations? Well, a national poll released on Friday showed that less than half of respondents surveyed believe that the economy will return to normal by the month of June. What this suggests is that the majority of a sample of the American population do not believe that the economy will recover quickly and that the effects of the coronavirus will linger for longer than many policymakers are communicating to the public.

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Figure 4: “V” Shaped Recoveries Tend to be Shorter Than “U” Shaped Recoveries
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Figure 5: More than 50% of Investment Grade Debt is One Notch Above Junk

Setting up for a rebound

In terms of how we should be relating to these financially important events, it’s our belief that people should look for the silver linings whenever possible. Without a doubt the spread of the coronavirus has derailed life and financial plans for many people. While the devastation is unique and personal to each one of us, it is also worth noting that the current events provide a unique opportunity to stop and reassess. That is, to take a hard look at what’s really important in each one of our lives.

Written by

I am Chief Financial Strategist and President of Franklin Madison Advisors. I write about the markets and economy to help people get ahead in life financially.

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