Written by: Paul Werlin, President, Human Capital Resources, Inc.
Millions unemployed. Oil prices in virtual free fall. Millions of business shut from coast to coast and no one knows when they will reopen or how many will never come back. But there are some encouraging sings and reasons for hope. It does look like stay-at-home orders and social distancing have begun to payoff. Case numbers and deaths from COVID-19 have flattened and in some case are declining. And some states have begun to gradually reduce restrictions and slowly reopen their economies. While there are signs of hope, there is still little doubt that it will be a slow process of getting back to something that looks like “normal.” For example, we may never board an airplane again without having our temperature taken and wearing a face mask.
So, what does this mean for the world and US economies and what can and should investors do now? At this moment, most market indices have recovered large percentages of their losses, and at this moment are only down about 15% from their all-time highs back in February. Certainly, some industries are hurting and will still have significant problems for the foreseeable future. It’s hard to paint positive pictures for the airlines, hotel, and restaurant business for the short term and perhaps longer. But many technology, food, consumer goods and medical companies are holding their own. And, with interest rates hovering near all-time lows, perhaps it’s not surprising that despite unprecedented challenges, investors are holding on and looking for opportunities.
With all this in mind, some investors are seeking higher yields and safety in US Treasury mutual funds and ETFs (exchange traded funds). While yields are still very low, some of these products hold 2-5-year maturities are still paying around 2%, much better than the 0 to .5% for short term bank CDs and money market funds. Also, with the sharp decline in some stock prices, divided yields for utilities and industrial stocks are looking very attractive. ETFs and mutual funds that invest in utilities and high dividend stocks are getting closer looks from investors looking for yield with for some are in excess of 4%.
But keep in mind, companies can and will cut or even suspend paying dividends if they believe their earnings or future prospects don’t support the cash needed, which General Motors recently did. And while many are rightly leery of putting more money into stocks, some experts are selectively buying quality companies in heath care, technology and other industries that may come back sooner than others. But, no one doubts there are still high levels of risk in the market.
Overall, there are signs we’re coming out of this, yes, with scars and injuries, but still breathing and hopefully we will be stronger in the not-too-distant future.
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