Glass Half Full
Unprecedented is a word that investors have heard a lot this year. First, it described the on set of the COVID-19 crisis and the shutdown of the global economy. Next, it described the size and scope of government stimulus efforts. Then, it applied to the market rally following the March 23rd low, with stocks posting the biggest fifty-day gain in history. Today, unprecedented might describe the level of uncertainty that investors feel in the face of developments never seen before.
Despite the uncertainty, we maintain a “glass half full” view of the markets. It is easy to view the outlook as being “glass half empty” given the many challenges today, including high unemployment, political turmoil, and a possible second wave of the virus. However, there are many reasons to be cautiously optimistic, starting with the fact that the COVID crisis, like other pandemics before it through the centuries, is ultimately a temporary situation.
Other reasons include promising developments with vaccines and therapeutics, record amounts of economic stimulus, and perhaps above all, the ability of individuals and businesses to adapt to change and overcome challenges. The unprecedented mobilization of Americans to work from home is one important example.
It may sound like a bold claim, but the COVID recession is likely already over (the definition of a recession being a decline ineconomic activity). That does not mean economic activity has returned to normal levels, far from it. It will be a long, rocky road to recovery, at least until the commercialization of a vaccine. But the economy likely bottomed in April or May, and it is the direction of economic activity–not the level–that matters most for markets.
In this quarter’s report, we address the most common questions from clients about today’s investing environment, and in doing so give reasons for our glass half full outlook.