You will agree that the last 18 months have been extraordinary.
There were clear signs of a global economic slowdown emerging through 2019, and then when COVID-19 hit in early 2020, it was a catastrophic scenario. The speed and the scope of the economic impact demanded a response with little time for evaluation from Governments. Central banks dropped interest rates to zero and Governments distributed, and continue to distribute, money direct to households and businesses on a massive scale. As it turned out, the flood of money resulted in the average household income being higher than before COVID-19 by around 15%.
Entire populations forced to stay at home; there was an instantaneous shift to living online. This unusual set-up of increased income and reduced spending due to being stuck at home, and people’s lives moving online, expressed itself through an increase in speculative activity across a range of financial assets including shares, housing, cryptocurrencies, trading cards etc. Markets have bounced back strongly after the initial shock.
The lingering economic impact is requiring ongoing stimulus by Governments. One year after COVID-19 burst upon the scene, society has adapted to a new world. Vaccination rollouts are progressing, bringing hope of re-opening economies. It is estimated that consumers across developed countries, collectively saved $2.9 trillion over the last year, which created the potential for massive pent-up spending demand. In the U.S., another $1.9 trillion of direct stimulus has been approved to address immediate concerns. On top of that, a longer-term $2 trillion infrastructure and jobs package is in the works. These factors are supportive of a continuation of current sentiment that has underpinned market performance.
The unusual nature of the economic environment does leave questions How long can the impact of COVID-19 last and has it changed societal behaviours forever? How sustainable is the debt-funded Government stimulus that is underwriting the global economy? These questions may take some time before we know the answers. What is clear is that current market sentiment favours ongoing optimism, especially if interest rates remain anchored around zero for the next 2 to 3 years.
The investment landscape is evolving due to lower interest rates and higher volatility
Because of this changing landscape we at RIVAL Wealth have been making some strategic changes to the portfolios over recent months to further enhance diversification. With interest rates being historically low and markets experiencing elevated volatility, we’ve been adding investments that will work better in this new environment.