July 6th, 2020
Dear Client/Prospect:
Well, we have certainly entered some new times. A fast-moving global recession seemed to be coming quickly, staggering high unemployment in a matter of months, the COVID-19 pandemic causing hysteria and sometimes continued ignorance, and a stock market that fully-recovered from the March 23rd low in the 2nd Quarter. That is, if you happened to stay the course. Quite a lot to stomach and quite remarkable from a market analysis. I don’t think anyone thought it would recover that fast and it’s tough to separate emotions or discomforts or unknowns from long-term investment strategies and trusting what got you here. I’m empathetic but also stoic in the hope that we will be stronger, smarter and more informed when we come out of this virus-induced state we’re in.
As many states enter this re-opening phase, we proceed with caution economically. Some good news in the June jobs report as 4.8 million jobs were created and the unemployment rate fell to 11.1%. This was better than the expected 2.9 million jobs increase and 12.4% expected unemployment rate. The June total is easily the largest single-month gain in U.S. history. While jobless claims continue to stay stubbornly high, people are getting out of their houses and slowly starting to spend and consume again. How slow or how fast this spending develops will determine how our economy continues to recover in 2020.
We are entering a sensitive quarter from an earnings standpoint. We know and expect that earnings will be missed and down, but will it be better or worse than expected? Will companies even provide guidance for the next quarter? There are also many companies that are digital or on-line and they may be doing very well. These companies have either adapted very quickly or already had a significant on-line presence. Is most of the lowered expectations already baked into the results or are we in for a bumpy quarter. I think we will see a little of both. Some companies will deliver lower numbers as expected and some companies will knock the ball out of the park. This will make for some volatile days. We have currently had plenty of good days balanced out with some bad days.
We recently had some client conversations about a second phase possibly coming late this summer or early fall. Nobody knows but it certainly could happen. We also could have a vaccine or cure before the end of 2020. Is that likely? Probably not. It’s more likely that it’s the first or second quarter of 2021 but…..stranger things have happened. I think we all hope COVID-19 burns off with this summer heat wave and never comes back. Not very likely though based on new cases in Florida, Texas and Arizona. The point is, don’t stray from the strategy that got you here, and don’t try to time the market. That type of guesswork doesn’t usually work out for most people. Let the professionals who you pay management fees to make those decisions to the best of their knowledge for you and let them sweat it out. Try to get out there and enjoy your summer in the safest way possible.
Sincerely,
J.B. L’Esperance, ChFC