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Second Quarter 2020 Market Commentary - Clarity in the Midst of Crisis


 

2nd Quarter Market Commentary

Clarity in the Midst of Crisis 


Getting clarity in the midst of confusion is difficult. In each crisis, I have experienced it is always considered one of the worst ever. This crisis is no different in that respect. In no way do I want to convey that this is not a serious issue we are dealing with. It is serious and unprecedented. Our thoughts and prayers go out to all who are impacted which is just about all of us. I have no doubt however that we will persevere through this crisis as we have through so many others. I hope you are being as creative as our family has been in coming up with ways to have fun together remotely.  I confess that my wife and I even accepted a quarantine dance challenge over Facebook last evening. Please do not look that up as a dancer I am not!  

This is a crisis not born out of the financial markets but out of a health concern. Similarly, the 9-11 attacks sparked a financial crisis out of what was not a financial issue. The necessary restrictions on movement have caused the economy to essentially grind to a halt. No amount of fiscal stimulus helps until the velocity of money begins to come back. As we continue to listen to the news and hear forecasts about the economy and market it is a good idea to be skeptical. We simply don’t have the data to make good forecasts at this point. I realize the irony of that as I write this economic update from Guardian Rock Wealth. Let’s jump in and see if we can provide at least some clarity in the midst of this crisis.
 
  • Stimulus in this environment
  • What to do and what not to do
  • Are there roses amidst all these thorns?
  • Why we remain upbeat 

 

Please keep in mind that these remarks are not meant as personal financial advice. Personal financial advice requires an in-depth personal discussion and as always past performance does not guarantee future results. 

 

Stimulus in this environment:
 
In the current market environment, the traditional economic stimulus does not work as well as at other times. What it does do is save many from economic disaster. No matter how low-interest rates are if consumers are not out and spending money the economy grinds to a halt. The FOMC and the federal government have committed massive amounts to fiscal stimulus, however, consumers here in the U.S. still make up about 2/3rds of economic activity. If those consumers are sitting in their homes sheltering in place, as they should be, fiscal stimulus will do little to stimulate until we are able to bend the curve on the number of virus cases. Many businesses are shut down or revenues have significantly decreased and yet rent, insurance, and debt payments are still due. Many of these items are addressed in the most recent relief bill but it will be some time yet before we can get the American Consumer back to doing their main job of consuming. I firmly believe that once we move through this some consumer behavior will be changed forever while in other areas there will be pent up demand for goods and services.
 
For now, we anticipate that unemployment claims will move into the multiple millions, that Gross Domestic Product (GDP) will decline by nearly double digits for the first quarter and consumer confidence and spending will decline precipitously. We expect all of those economic indicators to get worse rather than better this next quarter. Keep in mind that the markets tend to trade in anticipation of future events and calling the bottom of any market, or the top for that matter is a fool's errand.  
 
What to do and what not to do:
 
Do, exercise good judgment both in your personal life and with your investments. Rather than listening to the common news sources go to https://www.who.int/ or https://www.cdc.gov/ for your information. Another interesting source of information can be found here. The regular news media outlets have an agenda to get more viewers and sensationalism sells. Do, be patient and wait for more clarity.  
 
Don’t make any big decisions without complete information and don’t despair in the face of this market downturn. If you were invested properly for your personal situation you have the current cash and cash flow you need. 
 
Are there roses amidst all these thorns?
 
We see many investment opportunities in the marketplace today. The market is discounting nearly every business for several reasons. One is that people, in general, make emotional decisions and the emotional pain of loss is much greater than the emotional joy of gain. Another reason is that many investors have simply invested in an index that includes all businesses both good and bad. Smaller investors are more likely to hold these types of broad investments and are less likely to have qualified investment advisors to help keep them from panic-stricken selling. When they sell they are selling both good business and bad ones exacerbating the issue.
 
What this means for the prudent investor is that there are some great opportunities developing. While we still believe the market may have further to fall, we continue to use caution but are, in some cases, carefully investing in great businesses likely to recover significantly to the upside. It is important to note that during times such as these it is of paramount importance to be patient, thoughtful and seek the advice of those with the right kind of experience. As always if you would like to know more, we encourage you to reach out to see how we identify and execute on our investment strategies born out of many years of experience through rising and falling markets.
 
Why we remain upbeat:
 
Throughout history, mankind has survived and thrived through our ingenuity, innovation, and persistence. This time will be no different. During the Spanish flu epidemic, 25 million people passed away within six months and all during a world war. The world went on to survive and thrive. When AIDS was first discovered it had been around undetected for over a year. When terrorists attacked New York, the Pentagon and in Pennsylvania, we faltered and recovered stronger than before. Fast forward to today and we find that the coronavirus was identified within days, not months or years. We have scientists from around the globe working on a vaccine of which there are already many prototypes being tested. You can learn more about these vaccines here.

 

"Going from not even knowing that this virus was out there, which we then identified it as being a cause of infection in China in January, to have any vaccine that we can actually initiate a clinical trial in about two months is unprecedented," said Dr. Lisa Jackson, the Kaiser Permanente investigator leading the first human trial.”


All of this is made possible by the enormous strides made on the innovation front in human genome sequencing and testing that has happened just in the last five to ten years. In the book “The Obstacle is the Way” written by Ryan Holiday, published in 2014, Ryan expertly shows how we can not only survive but thrive during and after the crisis. As the scientific world figures this out and we have “socially distanced” for whatever period is necessary, we will emerge into a new normal. Some things will have changed forever and many will go back to the way they were. We have no doubt in our belief in the human spirit and our ability to not just survive but find ways to thrive both personally and in the markets.
 
Stay safe, stay well and above all call us with questions. We want to help you and anyone you know in any way we are able. You can call our offices or schedule a call directly with me by clicking here