“Tryin’ to make it real, compared to what?”
One of the greatest live albums ever recorded was Swiss Movement by Les McCann and Eddie Harris. It was culled from a performance in Montreux, Switzerland in June 1969. Some of the album was instrumental, with hits like “Cold Duck Time”, featuring Harris’ funky tenor saxophone backed by a punchy rhythm section led by McCann’s piano. But the signature tune was the anti-war anthem “Compared to What”. The five stanzas of lyrics painted a canvas of America trying to get a grip on itself during a turbulent period.
I’ve opined many times in these missives that I felt that our country is in a mental state akin to the late 1960s. The backdrop for that time period was a largely unpopular war in Vietnam as well as social unrest stemming from the civil rights movement. There were palpable significant divides – Black-White, North-South, pro-war-anti-war, wealthy-poor. To take a cue from the Talking Heads’ lead singer David Byrne, it feels like “the same as it ever was”. The Vietnam war has been replaced by the mask or no mask of COVID-19, but the other backdrops apply. Pundits say that history repeats itself, and I guess that’s where we are. It’s uncomfortable and scary, to be sure. Cities across America are facing mass protests related to the Minneapolis killing of George Floyd, sadly often resulting in looting and violence. My hometown of Columbus instituted a curfew Saturday night to quell downtown protests. Where all this leads is anyone’s guess. Folks are frustrated. The Coronavirus epidemic has led to historic death and unemployment. The world is slowing trying to re-open, but the toll on many businesses and entire industries looks to be massive. Like the late ’60s and early ’70s, it may take several years to recover from this combination of forces.
May’s stock market performance showed a welcome rebound. You’ll be pleased to see your monthly statements when they arrive. The S & P 500 reclaimed the 3000 mark, and NASDAQ had a strong surge. The Dow Industrials and small cap stocks lagged but still had outsized gains. Like the opening song lyrics, it seems as though equities are trying to state what’s really going to happen instead of taking its cue from the present scenario. To me, there’s a massive disconnect between Wall Street and Main street. It’s true that the stock market has been a historically efficient predictive mechanism. But isn’t it possible that we’re getting a little ahead of ourselves here? Is the shortest bear market in history over? Was it just a bump in the road for the overall bullishness? Are we going to have the V-shaped recovery that the markets are signaling?
I wish that I had answers. There are several factors that will be critical in the months ahead:
- Sustained volatility in the markets. Despite the nice upward trend in stocks, the VIX is still at elevated levels nearly three times what it was a year ago.
- The curve in unemployment claims is trending lower, but there’s still almost 40 million without a job. How quickly will people regain their former standard of living?
- The added unemployment compensation benefits run out this month. Will they be extended?
- Will there be another round of individual stimulus checks and corporate lending?
- Will the Federal Reserve continue its aggressive asset purchasing and lending practices?
- What will corporate earnings look like?
- How and when will the American consumer get back to historic spending habits?
- Can the stock market justify higher multiples if earnings are substandard?
- Can we remain in a relative détente position with China?
- How long will the protests in our streets last and what will be their overall effect?
- Will we have additional spikes in COVID-19, particularly in the fall?
- Who will win the Presidential election in November? What happens to control of Congress?
In my humble opinion, it’s been virtually impossible to trade this market. Wall Street hates uncertainty, and the dozen items above don’t totally encompass the challenges that lie ahead. May’s rally has been based on two items of perhaps wishful thinking. There’s anticipation of rapid advancement of a COVID vaccine or at least a prophylactic treatment akin to Tamiflu. There’s also the supposition that America will economically recover sooner rather than later. Whether these hopes are realized could spell the difference between extending the current rally or returning to the levels of February and March.
The bottom line is that we need to be patient. If you feel that you want to discuss risk tolerance and how your goals or strategies have changed, please make an appointment with us. Our team longs for the day when we can see you again without masks and social distancing. However, we are well equipped to handle get-togethers with technology.
I’m optimistic that science will triumph. America and the world will recover at some point. Trying to make it real in a pandemic world has few comparisons. But we’ll get through these crises… we always manage to do so. Most importantly, stay healthy and take care.
|The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification cannot assure a profit or guarantee against a loss. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. Indices are unmanaged and do not incur fees. One cannot directly invest in an index.
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