ONTARIO, Calif.–Credit unions have been offered an update on the 2020 market outlook and “Politics, Pandemics and Big Possibilities in a Divided World.”
Scott Knapp, chief market strategist, CUNA Mutual Group, told the California and Nevada Leagues’ Virtual REACH 2020 Conference the news on the economy actually remains “pretty good” in some ways, noting three quarters of the lost economic activity as the result of the pandemic has been recovered and the Fed has adjusted its 2020 forecast from -6.5% in June to -3.7% in September.
As of Oct. 15, 85% of S&P 500 members beat expectations during the third quarter, he added, with the average beat 29%. The historical average beat is 3% to 6%.
On the other hand, the U.S. Purchasing Managers Index shows that on a forward-looking basis it has declined slightly from one month earlier. Job gains have also been strong, but not spectacular.
The headline over all of that, he said: “We exceeded expectations, but a lot of slowing has taken place.”
So what should long-term investors be doing in the aftermath of the election, according to Knapp, whose presentation was recorded two weeks ahead of the election?
“The key consideration is how will economic policies change based on the election’s outcome,” said Knapp.
He pointed to the U.S. Treasury’s issuance of massive amounts of debt and Fed programs making it a direct lender to Main Street businesses as trends to watch.
The “elephant in the room,” he said, is monetary policy.
He pointed to the “major course reversal” in 2017 when the Fed began to shrink its balance sheets and it began to push rates up. That led to an inverted yield curve.
“That’s usually an indicator we’re heading toward a recession. The economy didn’t like the withdrawal of liquidity,” said Knapp. “The Fed’s response? Never mind. The lesson? Crisis-level support is very difficult to unwind.
“We currently have a lot of crisis-level support because of the COVID crisis. Think about that as we think about changes in economic policy in response to the economy itself,” Knapp said.