A 30 year perspective, and a bit more perspective on the 30-year mortgage
Adopting a long-term view on investing and the markets is needed most when it is difficult to do—like right now, when stocks are extremely volatile and under pressure as investors try to determine how COVID-19 and this year’s election will ultimately impact corporate and consumer sentiment and spending, corporate profits, and the pricing of risk assets. We do think a global, coordinated policy response and the modern, healthcare industry will see the economy and markets through—consider that the Federal Reserve (Fed) has already cut rates by 50 basis points, Congress approved an $8+ billion aid package, and the IMF and World Bank launched multi-billion dollar rescue funds. With that said, how do we look past recent weeks and take a long-term view of things, say a 30-year view of things? First, we can focus on the 30-year fixed rate mortgage, the bedrock of the US housing market, which just hit an all-time low of 3.29%. For most Americans, the most important asset they own is their home, and not only are housing prices at an all-time high, the cost to finance—or refinance—a traditional, 30 year mortgage is at an all-time low. While the economy is clearly in for a bit of a rough patch as COVID-19 makes its presence felt, the US consumer is supported by an exceptionally strong housing market, underpinned by very low borrowing costs, which will likely move even lower as the Fed cuts rates further. Unlike the mid-2000s, there is no sign of a housing bubble, as supply remains tight and affordability high. Pivoting to an actual 30-year view of risk assets, we see that over the past three decades the S&P 500 Index has provided us with a total return of 1,666%, and an average annual return of 10%. Volatile markets are never fun, but we do know this too shall pass.
Chart sources: Top, FactSet, as of 3/5/2020. Bottom, Federal Reserve Bank of St. Louis, as of 3/5/2020. The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only.
Tagged: Tim Holland, weekly wire, market perspectives, S&P 500 Index, Coronavirus