Only a few months ago, markets were crawling off the bottom of the pandemic-driven collapse. What a difference combined fiscal and monetary efforts have delivered so far. Growth Equity Markets have matched and exceeded their pre-coronavirus highs. This has been good news for investors.
Yet a word of caution is appropriate. Though continuing to exceed expectations, the economy still has a long way to go. If markets in February were in a bubble while the economy was at full employment, how do you describe the current scenario? In a word, cloudy, with a likelihood of increased volatility.
Far be it for us to look a gift horse in the mouth. There have been a lot of positive efforts to thank for this ballistic market:
1) Trillions in global monetary stimulus.
2) 169 vaccines in various stages of testing and trials.
3) Delivery of better treatment options for coronavirus patients.
4) A flattening and in many regions a lowering of the infection curve.
5) An economy that took a licking, but kept on ticking, with an improving heartbeat.
6) A promise of low interest rates for an extended period of time.
The reality remains – if markets were stretched in February, they must truly be so today when the economy remains 20% below peak production, with at last count 30 million still unemployed. We are truly between the Bubble and a Hard Place.
That said, we remain optimistic over the longer term. It is also important to remember that market indicators as represented by the indexes have been driven by as few as the 10 largest tech stocks. The remainder of the market is flat, with some sectors experiencing brutal declines – retail, travel, airlines and energy have been hit very hard, and in many cases will be permanently changed.
The retail sector is a glaring example of accelerated transformation. In 1995 Amazon introduced a new form of retail, and today there is an effective oligopoly of Amazon, Wal Mart, and Target. Most of the big box mall retailers have disappeared or are near bankruptcy, and most smaller outlets no longer exist.
Working from home is permanently changing how we work, as improved videoconferencing and telehealth services facilitate remote work. There may be a lot of empty commercial space moving forward.
So even as we struggle through the pandemic and economic crisis, opportunity abounds, and conditions will improve. With a highly contested election only two months away, we expect a raised level of volatility through the end of the year.
Earlier this year our advice was to stay with your long-term plan, remain invested, and look to the future knowing that change brings opportunity. The economy still has a lot of recovery ahead of it.