“Minute by minute by minute by minute… I’ll be holding on”… a very timely hook/lyric from the Doobie Brothers circa 1978. As an aside, I wasn’t crazy about the addition of new lead singer, Michael McDonald, to the band. They morphed from a fun, entertaining bunch of rock and rollers to a homogenized group tailor made for adult alternative radio formats.
That being said, the lyric is quite appropriate for where we live today. In just two short months, the world has virtually abandoned any future planning in order to focus on daily tasks. Think how we’re all required to be present – washing hands, not touching our faces, using sanitizer, social distancing, wearing masks, planning formerly simple trips to the grocery or pharmacy. Every day is different, but every day is Groundhog Day. The upshot of being so immediately intentional is that we have less to look forward to. No one is planning vacations. When children will return to school is up in the air. Sports might come back, but probably in empty stadiums and arenas. What semblance of normalcy will we return to? When will it happen?
In the end, it’s all on the backs of science to make people feel safe. Very few will resume their prior lives without assurance that greater strides have been made on COVID-19. There needs to be mass availability for immediate testing and contact tracing. Prophylactic treatments, when discovered, will hopefully lead to a vaccine. Opening up businesses to get the economy on track doesn’t necessarily mean that folks will be flocking to them. I don’t know what letter of alphabet soup the recovery will look like, but it doesn’t seem like a “V” to me.
As we’ve discussed in prior missives, the stock market has been trading on immediate news via algorithms. However, you’ll be pleasantly surprised to see your statements for last month. Per CNBC, April 2020 was the best April in 82 years. That’s a rather flabbergasting statistic – equities tanked in the first quarter, only to have a substantive retracement. Why all the optimism? Did we have the quickest bear market on record? Can we trust what happened in April?
In my opinion, April’s positive track was due to two factors: hope and the Federal Reserve. Hope is rooted in COVID-19 treatments coming through the pipeline more quickly than originally thought. There is a great race in biotech to be the company that comes up with the universal pandemic panacea. Perhaps as importantly, the Fed has acted decisively to make funds available through various programs. This has allowed many businesses to stay open for the near term. As an advisor, I cannot afford to be totally rooted in the present. A major portion of my job is to anticipate what things will look like in the future. The stock market tries to do the same exercise, although it’s muted in times of excessive volatility like we’re experiencing now.
What do I see ahead? On the downside, I’m predicting a rash of bankruptcies and unemployment lasting longer than we’d like. I’m envisioning a very slow return to business as usual. The travel, hospitality, and restaurant industries face a long slog. Brick and mortar retail will continue to be eschewed in favor of online avenues. Colleges and universities will have difficulty staying afloat, as will many municipalities. The national debt will balloon geometrically. The bottom line is that it’s relatively easy to talk about the negatives. I’ve barely scratched the surface.
At the same time, there are balancing positives. There’s an old saying, “Don’t fight the Fed.” With Chairman Powell committed to keeping the monetary spigot open indefinitely, that’s a critical bulwark. I’m also confident that Americans will get back to being Americans when the safety of a vaccine is available for all. Pent up demand for all that we cannot do or buy now will be incredible. Equities continue to be virtually impossible to trade. The VIX, or Volatility Index, is still three times what it was before the Coronavirus hit. Yesterday’s Dow trading saw a 3% intraday move, and those have been the norm. In the past two plus weeks, oil has gone from negative $37/barrel to positive $26. What logicality is there in that move?
As investors, it all boils down to assumption of risk and timeframe. I have no idea whether or not this upward trend will continue. We may have missed a historic buying opportunity in March. Then again, Warren Buffett didn’t buy anything either. The daily vicissitudes of Wall Street are both wondrous and aggravating. I wish that my crystal ball weren’t so opaque. This is a better time to discuss these issues than a couple months ago simply because the overall level of sheer terror has subsided. It’s much easier to be rational when portfolios are recovering rather than plummeting. RC, Ruth, Christie, and I are here to assist in any way we can. Please feel free to reach out at your convenience.
Finally, don’t forget to think about mothers on Sunday. Whether or not we like living in a nervous world, we wouldn’t be here without them. Take care and stay healthy. Minute by minute by minute, we all need to keep holding on.
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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