Fundamentals Eventually Outweigh Uncertainty

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Special Guest Blogger: Tim Kearney

Uncertainty has taken hold and uncertainty generates volatility. The extent of the coronavirus’ spread is not known at this time. What seems clear right now is that the disease is somewhat like the flu — especially dangerous for the elderly and people with compromised immune systems. The mortality rate appears to be low for those less than 29 years old and high for the those older than 79. While this knowledge may perhaps be encouraging, it’s not a point from which to declare: Pandemic Over! We still need to be cautious.

Adding to the uncertainty measure is the response from the major political players. The G-7 today promised to be vigilant, a bit short of immediate action. Generating more uncertainty, the communique didn’t outline what next steps might look like. From a pure policy standpoint, this is the correct position to take: they should not promise to do A if, when the time comes, B is what’s appropriate. The markets are likely to remain volatile but in the end the fundamentals will count most. And as the Federal Reserve showed yesterday morning, policy action is a fundamental. The Fed’s rate cut is likely to be followed by supportive actions from other central banks.

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