A different kind of crisis:
Insights from our Market Pulse call

To help institutional investors make sense of these tumultuous times, Zach Buchwald, the Head of BlackRock’s U.S. and Canada Institutional Client Business, hosted a March 26 webcast with Larry Fink, BlackRock Chairman and CEO, and Tom Donilon, Chairman of the BlackRock Investment Institute and former National Security Advisor to President Obama.

Larry and Tom shared their insights on topics including how the spread of the coronavirus may impact the economy and markets over the short term, what to expect from policymakers, what long-term structural and societal changes are likely to result from the pandemic, and where investment opportunities have emerged. Throughout the call, we asked a number of polling questions to the 1,500+ institutional investors who attended, in order to gauge their responses to this unprecedented shock.

Some key insights from both the call and the polling questions are recapped below.

Call insights

A different kind of crisis

The economic impact of the coronavirus pandemic is much more like a massive natural disaster or a war than a typical recession. The response within countries has been impressive, but we need to see more international cooperation. There was a high degree of international cooperation after 9/11 and during the global financial crisis, led by the United States. We hope to see more international cooperation, including between the United States and China, going forward.

While the short-term impact on economic activity is unprecedented, the longer-term impacts may be less severe than those of the global financial crisis, if we control the spread of the virus within the next few months.

Fiscal and monetary policy are helping, but more is likely needed

Coordinated fiscal and monetary policy moves are moving us away from having a financial breakdown on top of the economic breakdown. But we will likely need more stimulus, possibly an additional $1T+ in the U.S. The government recognizes this and is already having discussions about where additional stimulus may be required. State and local governments are under tremendous economic strain due to the shutdown of economic activity—a second stimulus package could address their needs.

With monetary policy, central banks are committed to doing whatever it takes to restore liquidity and smooth functioning across markets, and their actions thus far are helping a great deal. Looking ahead, if the U.S. Federal Reserve follows a similar path as it did to confront the global finical crisis, it may add an additional $4T+ to its balance sheet.

Recovery and long-term impacts on society

If the U.S. follows a similar pattern to China in stemming the spread of the virus, the economy should start to recover in the second half of the year. But the recovery is not likely to be V-shaped. Societies may remain more closed for some time, with restrictions on travel. Some of the hardest hit industries may take 12-18 months or more to recover, and long-term changes in individual behavior may mean that some industries are permanently altered. 

Among the long-term societal impacts we are likely to see is a large increase in the percentage of people that continue to work remotely full-time. This will have lasting implications for the commercial real estate market and will increase the importance of 5G networks.

Investment opportunities

We believe that market dislocation is creating long-term value in some parts of the equity market and in many parts of the credit market. When taking into account current yields on government bonds, the amount of debt governments are going to issue in response to the crisis, and the yields available from dividend-paying equities and corporate debt, there is a compelling case for moving some exposures out of government bonds and into certain high-quality dividend equities and corporate bonds.

Polling results

The results of the polling that we conducted during the call indicate that a majority of investors see the current market dislocation as an opportunity both to rebalance their portfolios in the short term and to evolve their organizations over the long term.

What long-term changes are investors making?