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‘Year of the Election’ Has Become ‘Year of the Virus’: J.P. Morgan’s Kelly

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J.P. Morgan Asset Management Chief Global Strategist David Kelly’s view of current uncertainty is that we’re “only in the early chapters of what the coronavirus could mean for the global economy.”

To be clear, “There’s tough times ahead,” Kelly explained during an interview with Bloomberg on Tuesday before the Federal Reserve’s emergency 0.50% rate cut.

“The way to think about this is that 2020 was going to be the year of the election. That script is gone,” the economist said. “This is the year of the virus.”

“There’s a lot we don’t know” about the virus and its impact, he said. “We don’t know how far this virus is going spread and … sadly how many people this virus is going to kill.”

The strategist said, overall, “This could get very bad for the global economy, because this virus is just lethal enough for everybody to pay attention and for it to slow down the global economy, cause social distancing and so forth.”

On the upside, it’s “not going to last forever,” Kelly added. “This is not a multi-year event.”

Though it could take some time for a vaccine to be readily available, “12 to 18 months down the road, we are going to be talking about a recovery from whatever it was,” he said.

Investor Playbook 

“The whole point is that there isn’t an easy playbook” for investors, Kelly said. “If there was an easy playbook, then the uncertainty wouldn’t be as great and the markets would bounce back faster.”

He suggests long-term investors think about what they can own that’s most suitable to “ride out the storm” and “that can benefit from rebound.”

“This is when good [corporate] balance sheets matter,” the strategist said.

“If you’re an investor, you should be investing not just for 2020 but for 2021, 2022 and so forth,” Kelly explained. “You’ve got to take a long-term view. We don’t know how deep this will be.”

Trying to get “the timing right” on entry and exit from the market is not the way to go, he said. Instead, now’s “the time to be somewhat conservative and have a portfolio with companies with good balance sheets … that can ride out a pretty rough year.”

Fed’s Role

As for the Federal Reserve, its rate cuts “will not really help the economy, that should be clear,” he said. “What rate cuts do is validate the drop in long-term interest rates.

“And those very low long-term interest rates — 1.10 on the 10-year Treasury — make it very difficult for people to avoid stocks,” Kelly explained early Tuesday. “What global rates really do is put a floor under global stocks. I think [the Fed] should [cut rates], but I think they should take their time.”

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