Session Recap: What Now? The Economy, Investing, and Elections

While Coronavirus looms large in the second half of 2020, it can feel like anyone’s guess as to the future of our economy. This pandemic crisis is like no other, so it seems like a losers game to make predictions. However, Jeff Brown, Founder and Managing Partner at Political Economy, LLC, believes we can indeed endure this Covid-19 rollercoaster by examining four key areas.

First, the economy. Economists and policy leaders predict the global economy will end down about 5% in 2020, but then rise 5.4% by 2021 end. And consensus among economists is that the GDP will bounce back in 2021.

What will increase the chances of this recovery? Brown says four things:

1. In the face of this unprecedented catastrophe, the federal government produced a historical response achieving a $2 trillion rescue package. Globally governments pledged about $11 trillion in fiscal stimulus. Even so, debt grew faster than income. Millions of Americans will not be able to pay their debts unless these stimulus programs are extended.
2. The paycheck protection program provided life support for many businesses, but it was scaled to get businesses through a short, intensive disruption. As the pandemic outlasts the relief, we will see more business failures and bankruptcies. Increased federal support is needed.
3. State and city governments face a fiscal crisis and unbalanced budgets in 2020. Already we see taxes, fines and fees collapsing, leaving an approximate $11 trillion combined budget gap in local governments. Without help from Washington this means job loss.
4. While economists and governments argue over economic health versus public health, Brown believes ending the pandemic is the single most important mandate to preserve the country’s wealth, health and economic function.

Secondly, to sustain the Covid-19 rollercoaster, it’s important to evaluate the upcoming election. Trump’s approval numbers are low due to his handling of the pandemic and race relations. With Biden at a 9-point lead nationally, betting odds put Biden’s election at a 58% likelihood, with Trump only at 38%. Betting odds also show 62% believe that democrats will capture the senate and house majority. If the democrats achieve this trifecta, what might America look like? Brown predicts the priorities will be:

• Public health and safety;
• Universal healthcare and an expansion of Medicare;
• Reduction in greenhouse-gas emissions;
• Return to multilateral engagement in foreign policy;
• Restoration of the top personal tax rate to 39.6% and an increase in corporate tax rate to 28% or higher.

Third, understanding the pace of change in the U.S. helps us weather the Covid rollercoaster. Brown says the pandemic isn’t really changing everything, but it is speeding up trends that were already underway. What may have taken a decade to play out has transpired in a few months. Three examples of these trends that are likely here to stay?

1. Digital health solutions will be fundamentally how health care is delivered. People find it useful and efficient to receive medical care from the comfort of home. Brown predicts $250 billion in healthcare spending will go toward digital health.
2. Major workplace shifts will continue the movement toward remote working and an increase in contract workers. As well, the hierarchical workplace of the past is going away, as companies emphasize social impact and authentic relationships.
3. The pandemic has accelerated deglobalization. There is a push by many countries to secure access to strategically sensitive new products and materials, which has intensified this process of disintegration.

Lastly, Brown looks at the impact of all of this on the markets.

Oil is a big loser in the commodities sphere, down 34%. The biggest winner in commodities is orange juice, up 37%. Why? Vitamin C keeps us healthy. Gold, silver and copper are also big winners, while other losers are coffee, natural gas, and corn. Interestingly, Bitcoin is up 28% YTD.

Through the spring, the S&P was down 4%; EAFE was down 12%; and emerging markets were down 11%. In late spring we saw various sectors take the lead, only for others to lag. When some businesses reopened their stocks rose, while others who could not reopen saw their stocks fail.

Trying to predict where the S&P might close at the end of 2020 is a guessing game, and Brown says we can expect volatility through summer.

Can the market fully recover by the end of 2020? Not likely. But Brown says don’t just give up on this year, and he hints to look at private equity investments for huge opportunities. If and when the economy can safely re-open, this rollercoaster will likely steady.

Gaby Griffin is the Market Leader for Business Owners and Family Office Executives at FOX. In her role, Gaby leads the overall Family Office Council experience and manages multiple councils. She provides members the opportunities to learn from and share ideas with highly accomplished and hard-to-find peers in a confidential environment. No matter what hat she’s wearing, her goal is simple – to create value for families by providing objective guidance and timely relevant information in order to make informed decisions. Gaby takes a very personalized approach to her relationship management practice and has built client and advisory relationships that span over two decades. She also serves as a member of the FOX leadership team. Areas of Expertise: Business Owners, Business Transition, Family Governance, Wealth Advisors Read More →