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Defying Gravity: The Market's Unexpected Rebound Thumbnail

Defying Gravity: The Market's Unexpected Rebound

Five months into life with Covid-19, everyone is reminiscing about how good we had it in the salad days before the virus. Remember how nice it felt to greet someone with a wide smile, a firm handshake, or an extra-long hug? How about the Dionysian pleasure of sitting down at your favorite locally-owned restaurant for a delicious meal not spooned out of a takeout tray? Even driving across town to the kids’ school or making that busy commute to the office would be cause for celebration at this point.

Despite the new decade getting off to a start that no one expected, it is remarkable to see how quickly people have adapted to the “new normal”. Whether it be the mental checklist before leaving home – purse, keys, phone…facemask – or scheduling Zoom calls to visit with family, colleagues, and doctors, Americans have learned to change with the times and discover new ways of enhancing productivity. Life may never look or feel the same, but there is no denying that opportunities for progress will arise – on both a personal level and as a society. The admonition to improvise, adapt, and overcome is always a welcome challenge.

The shift towards a more digital world has certainly been recognized by Wall Street. With the coronavirus as a catalyst, advancements in technology and healthcare have occurred at a pace many experts never thought possible. Citing the acceleration in growth, chief executives at many technology companies have been quoted saying that “2030 came in 2020”. Combine this innovation with the shot of adrenaline given to the economy in the form of stimulus and it’s comprehendible how 2020 might possibly end in the green. One recalls the exhilarating song from the Broadway musical Wicked, Defying Gravity. In our opinion, the stock market appears to be pricing in the expectation for a vaccine and full economic recovery. When scratching your head about the dramatic improvement in your portfolio since the March statement, remember that the market tries to read the newspapers 6 months from now and not just today’s grim headlines.

While the recent rally indicates that the future can be bright, several obstacles remain. To name a few: the unemployment rate is over 11%2 with enhanced benefits set to end next week, new Covid-19 cases continue to make all-time highs,  national debt exceeds $26.5 trillion3, and the strength of the U.S. Dollar has diminished due to the Fed’s quantitative easing4. There have been signs of improvement, yet we expect it will take time for the economy to emerge from the crater left by the virus’ impact. Moreover, earnings season and the election are right around the corner, which typically make for more volatility.

This year represents another excellent example of why it is important to maintain a disciplined approach to investing. Fear and greed are the two emotions that get people in trouble most often. When every news headline shouts that the world is in shambles, remember the long-term asset allocation that you have set in place. The stock market is a forward-looking mechanism and has recovered before the economy got better. On the flip side, when the market undergoes an extraordinary rally, avoid the temptation of adding risk to chase higher returns. We are firm believers that time in the market beats timing the market. If you have any questions about your risk levels, financial plan, or the state of the world, please reach out to us for a Zoom, phone chat, or in-person meeting (of course, at opposite ends of our conference room tables).

1ThomsonOne     2CNBC   3US Debt Clock   4InvesTech