Activity standstill

Recent market moves are reminiscent of the darkest days of the global financial crisis (GFC), but we don’t believe this is a repeat. Stringent containment and social distancing policies will bring economic activity to a near standstill, but provided aggressive fiscal and monetary policy actions are taken to bridge businesses and households through the shock, activity should return rapidly.

Implication: We are sticking to benchmark holdings and looking to rebalance into the risk asset decline.

Virus-related disruptions now pushing growth lower
BlackRock Growth GPS for developed market economies, 2016-2020

• Record plunges in economic activity data – US retail sales, initial unemployment claims and global manufacturing output being the latest – are confirming the unprecedented contraction in economic activity. See the chart above.
• The rate of growth in virus cases looks to be slowing in many regions as stringent shutdown measures take effect. A key question: whether such measures can be lifted without a major second wave of cases.
• The U.S. will likely prove more resilient because of a smaller share of manufacturing in its GDP, a relatively high share of healthcare spending and an aggressive policy response.
• The nature of the rebound will depend on the path of the outbreak, effective delivery of policy response and potential changes to consumer and corporate behaviors.

Bottom line: We see this shock as a temporary one and do not expect a repeat of the “lost decade” following the global financial crisis, but timely implementation of policy stimulus is critical.