MARKET INSIGHTS:NEW DEVELOPMENTS,WHAT TO CONSIDER, ANDTOP QUESTIONS ANSWERED
Our Speakers
HostJim ArmstrongMarketing Director, Fidelity InvestmentsJim Armstrong is a Marketing Director in Fidelity’s Personal Investing division. In this position, he creates educational content for workplace participants to help with retirement planning and other financial wellness topics. Formerly, Jim distinguished himself as an Emmy-winning journalist, spending 17 years as a television reporter for network affiliates around the country.
Special guest panelistsDenise ChisholmSector Strategist, Fidelity InvestmentsDenise Chisholm is a sector strategist in the Equity and High Income division at Fidelity Investments. In this role, Denise is responsible for the research of portfolio construction strategies combining sector-based mutual funds and exchange-traded funds (ETFs). Prior to assuming her current responsibilities in April 2013, Denise held multiple roles within Fidelity, including research analyst on the megacap research team, research analyst on the international team, and sector specialist.
Lars SchusterInstitutional Portfolio Manager, Fidelity InvestmentsLars Schuster is an institutional portfolio manager at Strategic Advisers LLC, a registered investment adviser and a Fidelity Investments company. In this role, he is a member of the investment management team and is responsible for delivering Strategic Advisers’ managed account investment philosophy, process, and ongoing activities to a wide range of investors.
*Total multiplier and GDP impact columns exclude $454 appropriated to provide risk capital to support the Fed’s lending facilities listed in the previous slide. While these facilities are helpful for financial conditions, their impact on GDP remains unclear. LEFT: CARES is defined as “Coronavirus Aid, Relief, and Economic Security.” Targeted industry support assumes the average multiplier for cash transfers and tax relief. The multiplier is defined as the ratio of a change in GDP over a change in fiscal deficit. Source: Congressional Budget Office, Brookings Institution, Fidelity Investments (AART), as of 3/31/20. RIGHT: Source: Bloomberg Finance L.P., U.S. Treasury, Fidelity Investments (AART), as of 1/31/20.
Category USD(Billions) Multiplier GDP Impact
Cash to Individuals 290 1.9 3%
Unemployment Insurance 250 1.9 2%
Aid to State and Local Governments 150 1.8 1%
Public Health Spending 340 2.3 4%
Loans to Small Businesses 376 1.9 3%
Tax Relief for Businesses 232 0.3 0%
Targeted Industry Support 78 1.1 0%
Risk Capital for Fed Facilities 454 N/A N/A
Total* 2,170 1.7 14%
Fiscal Policy to Mitigate Downdraft — but Not End It
CARES Act: Categories and Fiscal Multipliers
What Are We Watching?
Proprietary COVID-19 Models
High-Frequency Economic Indicators. Examples include: Initial Weekly Jobless Claims
Manufacturer New Orders
Credit Card Spending Data
Senior Loan Officer Surveys
Corporate Earnings Outlook
Likely too Late to be Bearish
Valuation Spreads Have Jumped in Recent Weeks amid Uncertainty
Average Valuation Spreads
Investors Have Also Rotated Quickly into Defensive Sectors
Cyclical Sectors Minus Defensive Sectors Cumulative Relative Performance (Average, Equal-Weighted across Sectors)
Past performance is no guarantee of future results. Valuation spread measured as an equal-weighted average spread of trailing price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, forward P/E ratio, and price-to-free-cash-flow (FCF) ratio of the top 3,000 U.S. stocks by market capitalization. Sector analysis based on the top 3,000 stocks by market capitalization relative to the Russell 3000 Index. Cyclical sectors: communication services, consumer discretionary, energy, financials, industrials, materials, real estate, technology. Defensive sectors: consumer staples, health care, utilities. Source: Haver Analytics, Fidelity Investments, as of Mar. 31, 2020.
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Well-Diversified Portfolio Advisory Services Accounts Have More Conservative Investment Positioning, Reflecting Our View of an Onset Recession
Diversification does not ensure a profit or guarantee against loss. This chart represents the relative asset class weights over time versus the long-term asset allocation mix of a PAS Total Return Growth with Income Blended preference. Stocks reference both U.S. and international stock allocations. Bonds represent investment-grade bond allocations. Short-term investments include money market funds and short-duration bond fund allocations. Extended asset classes refer to allocations to funds not within traditional stock, investment-grade bond, and short-term investment categories, including high-yield bond, commodity, and alternative investment allocations. The Growth with Income strategy has a long-term asset allocation mix of 42% domestic stock (Dow Jones U.S. Total Stock Market Index), 18% foreign stock (MSCI All Country World ex-U.S. Index (net MA)), 35% bonds (Bloomberg Barclays US Aggregate Bond Index), 5% short-term investments (Bloomberg Barclays 3-Month Treasury Bill Index). As of 3/31/2020. Current composition may differ, perhaps significantly. Source: Strategic Advisers LLC, as of 3/31/2020.
Total Return Approach Asset Class Positioning, September 2016 through March 2020Relative weight versus long-term asset allocation mix (%)
Cyclical Sectors Often Led Following Recession TroughsOverall, Cyclical Sectors Have Outpaced the Market in the Six Months after Recessionary Lows
Historical Odds of Sector Outperformance following a Market Trough, 1970–2019
Financials, Real Estate, and Discretionary Have Performed Best following Market Bottoms
Average Relative Returns following a Market Trough,1970–2019
Past performance is no guarantee of future results. Sector analysis based on the top 3,000 U.S. stocks by market capitalization relative to the Russell 3000 Index. Data includes the seven recessionary market troughs between 1970 and 2019. Recessions as defined by the National Bureau of Economic Research (NBER), representing 10% of the periods studied. Source: NBER, Haver Analytics, Fidelity Investments, as of Mar. 31, 2020.
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MARKET INSIGHTS:NEW DEVELOPMENTS,WHAT TO CONSIDER, ANDTOP QUESTIONS ANSWERED
Information provided in this document is for informational and educational purposes only.
Information presented herein is for discussion and illustrative purposes only and is not a recommendation or an offer or solicitation to buy or sell any securities. Views expressed are as of the date indicated, based on the information available at that time, and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the speakers and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.
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Past performance is no guarantee of future results.Diversification does not ensure or guarantee against loss.
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MARKET INSIGHTS:NEW DEVELOPMENTS,WHAT TO CONSIDER, ANDTOP QUESTIONS ANSWERED