As the coronavirus pandemic sweeps across the globe, the US is taking several steps to try and get it under control. Here’s some of the actions recently put in place:
- The Federal Reserve lowered their benchmark fed funds rate to 0%. This helps maintain liquidity in the financial markets and reduces lending rates (business loans, mortgages, credit cards, etc.). This action usually is a big positive for stock markets. I think the reason that it has not had the desired effect, at least not yet, is because lower interest rates aren’t going to stop the virus from spreading. Lower rates also aren’t going to pay the bills of any workers that no longer have a paycheck because their company’s operations have been interrupted.
- The Federal Reserve has restarted quantitative easing. If you were around in 2008/2009, you probably remember the term, quantitative easing, which is another weapon the Fed uses to combat a slowing economy. They basically inject money into the economy by buying up various securities, typically treasury bonds and mortgage backed securities. This works similarly to lowering interest rates, but the Fed usually does this after they have lowered rates down to 0%. Stock markets have not responded well to this move either, for the same reasons as I stated above.
- States are taking action to promote social distancing. Per the Centers for Disease Control and Prevention (CDC), one of the best ways to lower the rate of virus spread is to minimize interaction between people. So, we are closing schools, working from home when possible, and canceling sporting events, festivals, conferences, etc. I think this is the best way to flatten the curve, meaning, spreading out how many people get infected at one time. There will be a lot of people that will get this disease here in the states, but the key to managing it is to not have everyone get it all at once. Otherwise, our healthcare infrastructure will not be able to handle it (not enough beds, ventilators, medical personnel, etc.).
- Emergency Coronavirus Bill in Congress right now. Congress is working on a bill as we speak that will hopefully provide immediate assistance to those that become infected and to those whose paychecks may be in jeopardy if shutdowns continue for an extended period of time. I believe if this bill passes soon, it would help stocks come out of their current freefall.
- Vaccines are being worked on. Obviously, the sooner the better for this one. But the CDC says that it would be 12 to 18 months before it would be readily available to the public.
- Considering military assistance. There’s no time to consider anymore. We should be harnessing the might of our military to help combat this disease. We have 2 hospital ships that have 1,000 beds each that can be stationed in port near our hardest hit areas. Each branch also has their own medical corps along with construction battalions that can set up temporary facilities in existing convention centers around the country. These can ease the stress on existing hospitals if we do hit a spike of cases, similar to what is happening in Italy right now.
I’m no expert in controlling infectious diseases but it seems to be that these steps are getting us going in the right direction to protect our citizens and protect our financial systems. I feel the biggest factor that will help the markets recover is when we can see a decrease in the rate of confirmed cases. This can only happen if we start testing in large volumes. Large scale testing hasn’t happened yet but we seem to be ramping up to start this week. This will spike our confirmed cases pretty quickly, but at least we will have a better idea of where the biggest concentration of infected people are and can direct supplies and resources appropriately.
We definitely got a late start on corralling this virus, but we are taking action now. We’ll get through this and get back to a more normal way of life, with more hand washing, of course.
Please let me know if you have any questions.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
