Market Update - 4/16/20
Coronavirus – Uncertainty Still Ahead
As we continue to
hear stories about cases plateauing in some parts of the world, and
countries and states discussing how to reopen after the shelter-in-place
restrictions have been lifted, we are heartened knowing that our
temporary pain was not in vain. However, we believe that we are
still in the early chapters of this story.
No one has a crystal ball to predict how the rest of the story will play out. We would
also caution against listening to anyone that is able to deal in
absolutes at this time. Over the next few weeks and months, there
will be a lot of uncertainty in the market, economy, and world in general
and a lot of conclusions being drawn around when a return to “normalcy”
will happen and what that will look like.
Earnings
Uncertainty
We are beginning to enter earnings season for companies to report
earnings for first quarter. We believe that the market has priced
in the impact on first quarter earnings from the coronavirus. The
uncertainty will come during the second quarter of the year as companies
withdraw guidance on future earnings. Depending on how long the
economy is slowed there will be a lot of uncertainty generated as the
market tries to decide what to pay for unknown future earnings.
To put this in context, imagine a star athlete has a season ending injury
in the last year of their contract. When teams are offering a
contract for the next year, they will have to make a prediction about
whether the athlete’s future performance will be similar to their past
performance once they recover from the injury, even though the team might
have limited information about the severity of the injury or the success
of the rehabilitation. Some teams will be willing to gamble that the
player will come back to full form and make offers to that athlete, while
others will avoid making an offer
Economic
Uncertainty
Similarly, as economic news is released, there will be uncertainty on two
fronts. One will be the unknown of if and when economic activity
and consumer spending will return to pre-virus levels. The other
front will regard economic data releases and how the market responds.
In the short-term, we predict that there will be numerous data
points that will be the “worst ever” regarding sales, spending,
manufacturing, and employment among others.
Uncertainty with
the Covid-19 Battle
All of the above will ultimately come down to the progress that we make
battling this new coronavirus and what the new normal will look like
after the fact. It is important to remember that we are four months
into this virus being a known quantity and are learning more about it
daily. There are still a lot of unknowns out there and countries,
states and individuals are all processing them in real time.
The response in the U.S. compared to other countries has been delayed,
but fortunately, other countries can provide a playbook that the U.S. can
follow. So far, mass testing has been shown to be the best path to
getting economic activity rolling again. As more testing goes
online in the U.S. as well as effective antibody tests being created, we see
this as a positive to get our economy back on track.
As we stated, we are not trying to be alarmist, but want to disseminate
the facts as we see them as well as the uncertainties that we see in the
market. We believe that we are going to get through this and our
portfolios are designed to weather the storm and our asset allocations
are made to help you stay the course. During these trying times, we
encourage you to not give in to the “news of the day” and not succumb to
overreaction. Time in the market and not timing the market is the
best way to long-term financial success.
We are all in this together, and we are here for you. As always,
please do not hesitate to reach out if you have any questions or
concerns.
-The Investment
Committee
WealthQuest
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