The U.S. Federal Reserve weighed in yesterday with its latest statement on their outlook for the economy.
Their assessment was as uncertain as the markets themselves. They see rocky times ahead and will continue to keep interest rates near zero for the forseeable future, as they stated, until it is “confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
It’s important to note that that the Fed did not, as is their usual practice, tie their rates to specific inflation targets or unemployment levels.
Clearly, they see Covid as the biggest challenge ahead. This was made clear in their statement that: “The path of the economy will depend significantly on the course of the virus.”
What does all that mean for the markets and your investments?
There’s a lot of merit to the saying: “Don’t fight the Fed.” The remarkable recovery of the market was fuelled by a flood of federal money – much it through unorthodox monetary tools. Clearly the Fed is determined to lead this fight and that is surely a stimulant for both the economy and the markets.
It’s valuable to recognize that during the pandemic, the virus and equities don’t necessarily move in parallel. In the U.S., the markets made its biggest rally while the pandemic continued to spread.
While it was reassuring to see major losses erased, that doesn’t mean it’s clear sailing ahead. The Fed warned: the pandemic “poses considerable risks to the economic outlook over the medium term.”
What is clear is the fact that this market isn’t giving us a lot of investment alternatives. With interest rates bottoming out, fixed income investments and bonds will be very weak for a long time to come.
And we know that literally trillions of investment dollars are sitting on the sidelines as people became spooked by the pandemic.
Eventually, people are going to realize that to generate the returns their financial plans were based on, they will need to expose themselves to the risk of equities and mutual funds.
Holding high quality, dividend-generating companies for the long-term seems to be the best play during this time.
In the meantime, we all have to prepare ourselves for the rocky months ahead, during this “new normal.”
Clearly, the priority at the moment, for all of us, and our economy is to continue to do everything we can to contain the damage caused by the pandemic.
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This information has been prepared by Barbara & Eric Chong who are Financial advisor for Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Financial Advisor can open accounts only in the provinces in which they are registered. For more information about Investia, please consult the official website atwww.investia.ca