Monthly Market Insights from Bill Schiffman – July 2020
“Just the facts ma’am”… these were the signature words of Jack Webb as Sgt. Joe Friday on the 1960’s TV police drama, Dragnet. The role was reprised decades later by Dan Aykroyd in the movie of the same name, but without Webb’s lack of panache. The TV show was remarkable for the fact that Webb and his co-star Harry Morgan dressed in black and white even though the filming was in Technicolor.
I’m channeling Joe Friday today because our world seems incomprehensible. Our divisiveness harkens back to the time when Dragnet ran as a series. The reasons for the gulf remain similar – questionable leadership, inequality with regard to race, financial well-being, and education, unwillingness to engage in dialogue. We’re presented daily with a barrage of information from a multitude of sources. Instead of two sides to every story, we now have three or more. At minimum, there’s truth, falsehood, and an alternative “fact” pattern. Our processing of information depends on how we hear the data along with a bias toward whatever side of the issue we might be on.
Joe Friday’s job as a detective was to try to solve cases. He was largely successful doing so within the 30 minute confines of his show. Yes, it was all neat and tidied up for TV, but how he solved the cases was important. He used facts, not hope, projection, or supposition. There were no short cuts – just pounding the pavement to put the jigsaw puzzle together. Simple basic logic.
We’re far from that now. The stock market through the first half of 2020 has been mercurial. Quarter one was the worst quarter for performance in over forty years. Quarter two had the best results in 22 years (according to CNBC). Volatility has been roughly three times the calm level of 2019. Daily swings of 2% or more occurred with regularity. Individual stocks, particularly in the airline, energy, and hospitality/recreation industries, experienced double digit ups and downs depending on news flow and the moods of inexperienced day traders.
I’ve been opining that the stock market since the onset of COVID-19 has been untradeable. I’m a veteran of decades as both an investor and wealth advisor. I’m also a CPA. Perhaps it’s that facet of my education that leads me to be fact based in my decisions. I find it difficult to be emotional about owning stocks, bonds, or commodities. They’re not my friends, even when they’re performing well. They’re strictly a means to an end.
The problem with 2020’s market has been that there simply aren’t enough facts on which to make trading decisions. The downward tumult in February and March was due to fear of COVID-19. We had no idea how many of us would contract the virus, or how many would die. It was impossible to have facts on how deleterious the pandemic would be to the world economy. Science was playing catch-up with regard to ontology of the virus, transmission, and treatment.
Was the first quarter correction logical? Markets tend to overshoot on the downside when bad news presents itself, and do the opposite when the horizon brightens. I’m certainly not saying that we shouldn’t have had a negative quarter, but the dimension of losses was not grounded in logic or fact. I believe that the same premise can be made for the second quarter even though we like the results a lot better. The prospect of re-opening America spurred hope for a V-shaped recovery. Many states had followed factual guidelines and were seeing flattening and then lowering of the curve in new cases, hospitalizations, and deaths from COVID-19. It now appears as though we got a bit ahead of ourselves, as conditions are forcing many governors to rethink their plans. The consensus a month ago was that we were battling the pandemic on roughly even terms. Now that calculus has changed, and we appear to be on the ropes again. What’s next?
I wish I knew. I have no facts on which to support any position of recommendation. There’s a major disconnect between Wall Street and Main Street. How can stocks be showing only slightly negative performance in 2020 when 20 million people are unemployed? When and in what form will the engine of the US economy, the American consumer, come back? When will we be able to have the confidence to resume normal activities?
The only fact that I can accurately state is that very little will happen until a readily available and affordable vaccine is produced. I am absolutely confident that science will win. There are too many smart minds at work, and today’s computing power is awesome. When we’ll have the victory is unknown, but everything revolves around its occurrence.
Until then, my suggestion is that you remain on your long-term course unless you do not subscribe to science winning over COVID-19. The markets should remain volatile for the foreseeable future, and this means the continuance of angst and wild mood swings. COVID-19 is creating pent-up demand for all sorts of things, and that overly stretched rubber band should snap back handsomely when a vaccine is found. Think about how the market might react to the FACT that there is a vaccine. I would posit that we’ll be happy we stayed invested at our risk tolerance when that happens.
In the meantime, stay safe and healthy. Please feel free to call or e-mail with questions/comments. Our team of RC, Christie, Ruth, and me look forward to hearing from you soon.
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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