As we continue to live through the global pandemic, the overall outlook continues to be murky, but less so as time goes by. When the outlook in the market is uncertain, market volatility is usually driven by conflicting investor sentiment resulting from a dominant market-driven event such as COVID-19.
April ended with nearly half of the S&P 500 reporting earnings, and it surprisingly showed the smallest weekly change since the first week of the year, which reflected ongoing investor sentiment of optimism as the economy slowly begins to reopen.
The Fed is still leaning in the short and mid-term, towards an accommodative environment in which monetary policy will keep the discount rate at near 0% for some period of time, even as growth returns to the economy in the coming months. The Fed has made clear that the spigots of the money supply are open, as market security purchases would likely include corporate bonds, and a whatever-is-necessary strategy would remain in effect until the crisis subsides.
The trend in non-farm payroll data will be closely watched, as expectations are for weak employment numbers for the rest of the year, with the hope of systematic improvements as the economy opens up. Fiscal policy stimulus measures and rescue packages give some hope that the employment trajectory will improve rapidly, but many small businesses will be lost, resulting in an unemployment rate that is unlikely to return to pre-covid levels in the near term.
These volatile times prove that you need a goals-based approach to your portfolio management strategy, and a clear understanding of how your portfolio will adjust to market volatility before these type of events occur, so you are adequately prepared to survive and thrive in the future.
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