With the COVID-19 virus continuing to expand its presence throughout the United States we have seen responses both from monetary policy and fiscal policy.

On March 15 the Federal Reserve (Fed) slashed the Fed Funds rate to a range of 0.00% to 0.25%, the lowest level since December 2015. While the interest rate reduction was significant, it was only a portion of the bazooka shot the Fed has unleashed in terms of loosening monetary policy. Other steps include purchases of securities to smooth the functioning of the financial markets, implementing measures to support credit flow to employers, consumers and businesses and the establishment of facilities to support credit to large employers.

In addition to the monetary policy steps taken by the Fed, the legislative branch delivered a cannon shot in terms of the CARES Act that was signed into law on March 27. This piece of legislation (CARES stands for Coronavirus Aid, Relief and Economic Security) contains provisions totaling $2 trillion that are meant to provide relief to individuals and businesses that have been impacted negatively by the coronavirus outbreak. Included are direct payments to taxpayers, an extended unemployment insurance program and an allowance for employers to delay the payment of a portion of their 2020 payroll taxes.

Regarding the prospective impact to investors, the various  monetary and fiscal measures undertaken serve to underscore the severity of the coronavirus outbreak and its economic impact in the United States and around the world. Simultaneous to the Fed’s bazooka shot and Congress’ cannon shot have been reductions in estimates for economic growth and corporate earnings.

The most significant impact economically is anticipated to occur in the second quarter with improvement materializing in the second half of the year. We are starting to see weakness in some of the recently released economic data, most harshly in new claims for unemployment benefits.

In the interim our focus is two-fold: assessing near term risks that will arise due to economic decline and identifying attractive long-term opportunities created during a period of weak economic growth and heightened volatility. Numerous dislocations and areas of relative underperformance have appeared across financial markets and we are currently evaluating a number of these and determining their level of future potential.

Source: BTC Capital Management, Bloomberg LP, Ibbotson Associates, FactSet.
The information provided has been obtained from sources deemed reliable, but BTC Capital Management and its affiliates cannot guarantee accuracy. Past performance is not a guarantee of future returns. Performance over periods exceeding 12 months has been annualized.

The information within this document is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Statements in this report are based on the views of BTC Capital Management and on information available at the time this report was prepared. Rates are subject to change based on market and/or other conditions without notice. This commentary contains no investment recommendations and you should not interpret the statement in this report as investment, tax, legal, and/or financial planning advice. All investments involve risk, including the possible loss of principal. Investments are not FDIC insured and may lose value.

Jon Augustine, CFA, Chief Investment Officer

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