Investors will move to further top-up their portfolios following the U.S. Federal Reserve’s meeting and since the Covid-19 crisis gripped the global economy, according to the CEO of one of the world’s largest financial advisory and fintech organizations.
Following the Fed’s meeting on Wednesday at which policymakers said they would hold rates the same at near-zero for some time to help boost an economic revival, deVere Group’s Nigel Green had this to say:
Mr Green notes: “It was expected that rates would stay the same and the U.S. central bank’s decision was unanimous on this."
Fed Chairman Jerome Powell said the coronavirus pandemic “weighs heavily” on the American economy – the largest in the world – and that the Fed would do “whatever we can, and for as long as it takes” to support the recovery and “limit lasting damage” to the economy.
Green adds:
“Against this backdrop, further stimulus can be expected from the Fed – and also perhaps from Congress too – in the near future as the economic revival will be a longer process than many had hoped.”
Green said that the "backstop" from the Fed cuts the chances of a second market slump, even if economic data deteriorates further.
What’s next for investment portfolios?
The Fed provides something of a ‘floor’ for equities.
He adds:
“As a result of this, investors will be seeking to further top-up their investment portfolios to get ahead at lower entry points, before the hike in values that would kick-in with another round of stimulus.”
Mr Green’s message, however, comes with a warning too:
“To many, the stock markets have seemed out of step with the bleak economic data recently ... But it could also be the case that they are giving us clear signals for the current and future shape of the economy, in which there are and will be distinct winners and losers, unlike in other recessions."
Green said the Fed believes the economic outlook for the rest of this year will be tough. But it will continue to purchase government-backed debt “at least at the current pace” and the markets believe this will be further increased in order to maintain a smooth functioning of the financial system.
His final thoughts:
“This will support and likely boost asset prices moving forward. Investors will now be eyeing the opportunities before any fresh or enhanced stimulus packages are announced.”