Eagle Asset Management | Equity Income Investment Team
Landscape tied to COVID-19
At the core, we believe COVID-19, as well as the prospects for developing effective vaccines and treatments, will be crucial factors in determining how the investment landscape evolves through the end of the year.
Worldwide, the number of daily new cases has not peaked; however, daily deaths appear to have peaked in mid-April. We view this as evidence the healthcare community is getting better at treating patients and reducing mortality. In the United States, the daily case rate remains volatile due to a number of factors. In some regions, new case rates are trending upward. Importantly, daily deaths and hospitalizations in the U.S. as of late June had declined from their peak, which we believe may be the more important statistics to watch.
Looking forward, if a “second wave” of new cases causes hospitalizations and deaths to climb, we would expect economic activity (which has been improving) to lose momentum or potentially take another turn for the worse.
Vaccines and therapeutics to treat COVID-19 are being developed with unprecedented speed and cooperation, and a vaccine could be available as early as the fourth quarter of this year. Wall Street and the healthcare community appear to be cautiously optimistic these efforts will produce fast and effective solutions, but we are still in the early stages of development. We expect investors to keep a close eye on safety and efficacy results from upcoming clinical trials, which are likely to move markets.
In the Equity Income portfolio, we are focused on healthy dividend yields and dividend growth. The global shutdown of economic activity caused by COVID-19 has stressed most corporations. One stress is the willingness and wherewithal to continue to pay a dividend. Fifty-four companies in the S&P 500 Index have reduced or eliminated dividends so far this year. In this environment, our focus on companies with diverse business models, strong balance sheets, resilient cash flows, and a commitment to dividend payment and growth is paramount.
While it’s hard to say the 2020 election has been pushed to the background, it is probably getting less attention from investors than it would in a pandemic-free environment. The results of the 2016 election taught us that polling data is less than reliable; nevertheless, as we get closer to November we expect increasing focus on election odds and how each candidate’s prospective policies could impact the economy and the market.
We also have observed that many stocks are pricing in a scenario where this environment is the “new normal.” We do not have a high degree of confidence that, one year from now, the majority of Americans will still be working from home, cooking our own food, and shunning air travel. But it’s a possibility. We believe it will be profitable to focus on companies flexible enough to serve customers in whatever environment the new normal turns out to be.
On a state-by-state basis, businesses are being allowed to reopen, sometimes in a limited capacity. This is good news for some, but unfortunately we believe the downturn was too severe for many businesses, primarily small ones, and they will not be back. The fear now is a “second wave,” or uncontrollable resurgence of the virus that throws us back into lockdown mode. The consumer savings rate has skyrocketed, which can serve as good “dry powder” for future spending. However, many are still unemployed. In our view, the key at this point for consumers is to get the economy fully reopened.
About Eagle Asset Management
Eagle Asset Management is built on the cornerstones of intelligence, experience, and conviction, driven by research and active portfolio managers. Our long-tenured investment teams manage a diverse suite of fundamental equity and fixed income strategies designed to meet the long-term goals of institutional and individual investors. Our teams have the autonomy to pursue investment decisions guided by their individual philosophies and strategies.
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