To Donations and Bequests for Church Purposes, Inc. from Bank of America, Portfolio Strategist in response to COVID-19
Joseph A. McCourt, CFA, Managing Director, Senior Institutional Portfolio Strategist at Bank of America, Private Bank prepared the following remarks.
At present, markets are trying to digest a worldwide viral pandemic. This is a powerful source of insecurity, and insecurity is the thing market participants dislike the most. Add in algorithmic, automated trading systems that sell automatically when certain levels are breached and you get falling prices which bear no relation to the underlying health of the U.S. economy (or of its populace).
From a viral perspective, new cases in China and South Korea have dropped markedly after a previous precipitous rise. This is the nature of epidemics in which initial unchecked transmission is replaced by preventative measures like isolation, and ultimately an understanding of how the illness can best be treated. Formal closures and self-isolation are a key element in fighting the pandemic, but as can be imagined they cause economic dislocation as work is left undone, wages lost, and purchases deferred. Our government has been relatively slow so far to recognize and act to alleviate this, and economic insecurity has to some extent fed on itself and grown over the past 10 days. When a stronger response to economic damage is crafted, much of that portion of worry will be removed. As is quoted in the attached white paper “when policy makers panic, markets stop panicking”. Aggressive action will reduce insecurity with stability the result. The ultimate package is likely to include added liquidity, temporary tax cuts, and subsidies to industries most impacted. Further, the U.S. will also reach a point at which preventative measures take effect, and new COVID-19 infections subside. As danger passes and as added stimulus reverberate through the economy a bottom will be created and the market recovery will begin.
As Mr. Hyzy indicates, the diverse asset classes in use for the Donations & Bequests account are “one of the most important portfolio strategy factors one can deploy, especially during most volatile times”. With multiple markets and sources of return, the asset portfolio has always been diversified in a deliberate measure to reduce risk. Once volatility subsides and stability returns, we expect the stimulative measures and simple relief that the crisis has passed will lead to rapid recovery. We will manage the D&B fund with these expectations and take advantage of the opportunity when the time arrives.