The coronavirus pandemic has created uncertainty in the economy, rocked the stock market, led to historic unemployment, and brought about a tragic loss of life around the world. However, Birchwood Financial Partners Investment Manager Steve Dixon reminds investors that there are reasons to feel optimistic about the U.S. economic recovery.

“The ability of our central bank, the ability of our federal government and local government to act and try and help during this period shouldn’t be discounted,” Dixon says encouragingly. “I think the ingenuity we have as Americans, as humans, is pretty significant as well.”

Dixon led a discussion in a Birchwood Financial Partners webinar in March this year, which covered a number of topics related to the current economic crisis. With no clear end to the pandemic in sight, people still have more questions than answers. In the March call, Dixon answered three questions weighing on the minds of many investors: Rebalancing portfolios, the stock market recovery, and future inflation.

Q: How do you rebalance my portfolio? When do you rebalance? 

A: “The ultimate answer is we rely on technology. We do not rely on coming into the office in the morning and saying, ‘I think today is a good day to rebalance.' It has everything to do with when your particular portfolio allocations move out of our acceptable thresholds. So we will let your stock allocation dip to a certain level. We will let your bond allocation increase in relation. But at a certain point, each of your portfolios has thresholds built in that will, once they're hit, tell us that it's time to rebalance.

“I think we have to be very clear that the bottom is not known. We may have seen it already. We probably have not. But I'm not going to speculate that we have any idea. If you hear anyone that says they know, they probably don't. But our job is not to try and pick the bottom. Our job is to try to take advantage of this downturn on your behalf and I think you're all probably aware of the importance of staying in the market.”

Q: How will the stock market start rebounding? How quickly will it rebound?

A: “I think that it's tough to say right now, but there are a couple thoughts I have. One is, you've seen how quickly the market has sold off. This has been the fastest drop in the stock market that we've seen. So markets are going to react a lot quicker than we're used to. I think the potential is that this takes a while for us to recover. But I think there's a growing possibility just based on how fast markets react, that the stock market, once we start to see some sign of hope, some sign that maybe we're going to be able to return to work soon, return to school, that I think the stock market could potentially run higher very quickly.

“So I think at a certain point you might see a very, very quick bounce back in the market. You know, it might not be a straight up climb and might still be kind of these big up and down days. But I wouldn't get too caught up in thinking that it's going to be a long, drawn out down market. I think there's definitely a possibility that we recover much quicker.”

Q: Will we see inflation as a result of the CARES Act?

A: “I think we're certainly getting to a point where you would think that inflation should be a concern. And the reason being that we are now back to zero interest rates from the Federal Reserve. And the implication is that when interest rates are so low, we all go out and borrow money and spend it and therefore it kind of creates some inflation. Unfortunately, that hasn't been the case over the past 10 years. You know, the Federal Reserve did a lot during the financial crisis in 2008 to put money out in the economy. And what we saw was inflation in asset prices, but not necessarily inflation in consumer goods or other parts of the economy where traditionally inflation has been seen.

“Quite frankly, if it resulted in regular inflation or slightly above average inflation, that would be phenomenal. What we're all concerned about is, does it create the kind of that hyperinflation scenario? And at this point, that's not something I would be worried about.”