U.S. Markets

Expected U.S. rate cut benefit may not head off coronavirus hit: Beacon Capital

(Reuters) - An interest rate cut by the Federal Reserve is unlikely to completely stave off the economic impact of the coronavirus epidemic, Chris Cook, founder and president of investment firm Beacon Capital Management, said on Monday.

Cook, whose firm oversees $3.5 billion in assets, told the Reuters Global Markets Forum that he has cut some clients’ exposure to stocks entirely as the epidemic would likely impact U.S. economic growth and company earnings through most of 2020.

He said global markets will fully recover only once a vaccination for the disease is available.

(The following are excerpts from a Reuters Global Markets Forum chat. To join the forum, click here here)

Q - How has the coronavirus impacted your 2020 outlook?

A - It’s clear that the coronavirus is spreading throughout the world, so [company] earnings will be impacted for the next few months at a minimum. The question is whether the built-up demand will flood back into the market once it’s contained.

It’s not possible for [the impact] to be limited to the year’s first half. It is most likely going to have an impact through most of 2020.

Supply chains don’t need the lead time they once did, but there are large population centers throughout Asia that are effectively closed. Once a vaccination is deployed, it will take some time to get them off the ground again.

Q - Are markets overestimating the benefit of an interest rate cut to tide over the virus impact on the U.S. economy?

A - I think so. People aren’t holding back because they don’t have access to cheap money. They will naturally avoid places and events that may expose them to the virus. A rate change doesn’t change those actions.

Q - How long will it take for the U.S. stock market to recover?

A - Once a vaccination is available, the market will most likely rebound because the damage is contained. The tough question is determining when that will be available.

Q - What changes have you made to your portfolio over the past few weeks?

A - We’ve been steady in our allocations until last Thursday when we hit our stops to trigger a more conservative allocation to U.S. Treasuries. Depending on client risk tolerance, we reduced equity exposure by 50% to 100%. Right now, the only sectors we aren’t avoiding are real estate, utilities and healthcare.

Q - Do you see the healthcare sector fairly priced given U.S. election risks such as a Bernie Sanders’ candidacy?

A - If the coronavirus weren’t here, I would say absolutely. The political risks are high, but there is a short-term opportunity that will hold up the sector. If the virus continues to spread, there will be an overwhelming demand for services across healthcare that will ultimately hit the bottom line.

Reporting by Lisa Pauline Mattackal and Aaron Saldanha in Bengaluru