Financial markets collapsing will hit US’s high-risk portfolios hard

The US’s strong reliance on the riskier investments of equities and mutual funds will lead to a sharp decline in 2020 as the economy falls into recession. Forecasts show that the total market value is to decline by 15.1% in 2020, down from growth of 1.7% predicted before the pandemic, according to GlobalData, a leading data and analytics company.

Prior to the pandemic, stock markets in the US had rallied as phase one of the US and China trade deal had been agreed towards the close of 2019. However, COVID-19 has thrown growth rates into reverse.

GlobalData’s senior wealth manager analyst, Heike Van Den Hoevel, comments: “The average US portfolio allocates 70% to equities and mutual funds – the most of any country. This will see the financial market downturn have a particularly severe effect on retail holdings. GlobalData expects retail equity and mutual fund holdings to take the brunt of the economy’s slowdown, with respective declines of 30% and 20% anticipated.”

However, deposits and bond holdings are set to benefit from a flight to safety from consumers, similar to most other countries. Consumers will move away from risk assets and cash holdings, because of the pandemic.

Van Den Hoevel concludes: “We forecast deposit and bond holdings to see significant rises in 2020. Investors’ ad savers should not assume they will gain much from such asset classes other than a safe haven, though. The Federal Reserve cut interest rates to the 0.00-0.25% range, down from 1.00-1.25% in March, meaning there will be little to no return after inflation.”

Information based on GlobalData’s report: Covid-19 Sector Impact: Retail Savings & Investments – The US

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