Market Commentary December 2020

Even with a stout selloff on the final trading day, November will go into the books as one of the best stock months in decades. Good Novembers often set the stage for good Decembers, and there is reason to believe stocks can carry a bit more strength into their final stretch in 2020. In years in which the market is positive through 11 months, as it is in 2020, the last of the bearish money managers are forced to capitulate or risk the wrath of their clients. Scrambling for return, these bears-turned-bulls will tend to window-dress clients’ portfolios with the stocks that have worked best all year.

Market Commentary November 2020

The COVID-19 pandemic has achieved another grim milestone with the global number of coronavirus cases exceeding 50 million. US data is troubling, while trends in Europe are flat-out alarming. The new wave of infection worldwide has followed relaxation of lockdowns on restaurants, bars and other gathering spots along with the natural inclination to move indoors as colder weather arrives. Fortunately, fatalities are not fully tracking the rise in new cases. But governments want to get ahead of the curve before it worsens with further lockdowns and tightening restrictions that were eased just months ago. Amid widely disparate commentary from health professionals, Dr Anthony Fauci, one of the US’s top infectious disease doctors, has argued that national lockdowns are not the optimal way to combat the disease. Instead, he argues that citizens should maintain proven public-health measures such as masking and social distancing “to help us safely get to where we want to go.” With the devastating effect lockdowns have had on the economy, we could
not agree more.

Market Commentary October 2020

The financial pain of the pandemic has mainly focused on those least able to afford it – low-wage workers in people-facing industries, such as restaurant workers, airline employees and physical trainers. Knowledge workers, who have been able to continue working from home, have been less affected by the shutdown. Indeed, this group of workers has benefited – not from higher wages, but from sharply reduced costs. Without being able to spend their salaries, their saving rates have rocketed. Increasingly, reporters have adopted the term “K-shaped recovery” to describe this disparate experience of those at the top and bottom of the economy. The structure of the letter ‘K’ lends itself to this analogy, as the fortunes of those on the upward thrusting arm of the letter diverge from those on the downward-sloping leg. It is certainly a more apt analogy than that provided by, say, a V-shaped recovery, with its assumption that we are all in this together. Given that the stock market is experiencing its worst case of indigestion since March, the message is simple: the economy – and by extension the stock market – cannot flourish if a large segment of the population is left behind.

Market Commentary September 2020

The stock market obliterated the “sell in May” maxim this summer. Anyone who “went away” missed out on some large gains. These gains came amid unprecedented economic pain, high unemployment, and rising COVID-19 cases. Looking past those massive challenges, investors focused on strengthening economic data, growing receptivity to wearing masks and maintaining social distancing, and steady progress on leading vaccine candidates. In a strange year, the stock market and economy are exiting summer with Brexit negotiations and US presidential electioneering firmly on the front pages. With the chances of a Brexit deal estimated to be as low as 30% and Joe Biden leading in the polls, it would not be surprising to see the stock market find direction one way or the other.

Market Commentary August 2020

Stock performance often seems uncoupled from key economic data and corporate earnings. In general, the stock market is anticipatory of what is to come, while economic data and earnings are lagging – the former by one month, the latter by three months. Thus, it is not uncommon for cyclical companies to be reporting their best earnings of the cycle amid strong data – just as the stock market begins to nosedive in anticipation of a slowdown or recession. And stocks may leap off their lows even amid a steady stream of dismal data. There is indeed an element of hope in the stock market’s anticipatory impulses. Never has that hope been so plainly in evidence as today as investors head into what looks to be an exceptionally weak second-quarter earnings season.

Market Commentary July 2020

The reopening of the economy is underway, and nothing – not even a fresh wave of COVID-19 infections – is likely to reverse it. With businesses reopening and consumers warily venturing out to restaurants, beaches and hair salons, the economic data is showing signs of ticking higher. The goal of the initial shutdown was never to stop the disease in its tracks. The goal was to flatten the curve so that the pace of new infections did not overwhelm the healthcare system. The economic stakes are too high to roll back the reopening and begin another shutdown. For all these reasons, the phased reopening of the economy will proceed.

Market Commentary June 2020

Stocks have staged a remarkable rebound over the past several weeks, despite dismal unemployment readings and declining profit expectations. Investor optimism appears to come in several forms: that job losses will be temporary and return quickly once lockdown restrictions are eased; that a relatively quick breakthrough on the health care front will occur to combat the virus through treatments or vaccines; and that monetary and fiscal stimulus will keep consumers and businesses afloat until the economy recovers. Another few things could be fuelling recent market psychology – a “worst-is-over” mentality that is bringing in substantial money from the sidelines; a “no-place-to-go-but-stocks” approach given record-low 10-year yields; and a “fear-of-missing-out” thinking that has investors worried about lagging performance.

Market Commentary May 2020

Will we ever get back to normal? COVID-19 is not just the worst pandemic in 100 years, but also the first pandemic of the information age. It also reflects a new kind of thinking, that it is worth stopping the global economy in order to minimise deaths. Perhaps the hyper-awareness wrought by social media in the digital age is why global leaders stopped the economy. The first steps on the long walk back from the pandemic have barely begun. And the likelihood is that the world we return to will be changed in fundamental ways.

Market Commentary April 2020

The losses from this pandemic have been sudden, shocking and real with a global recession now an almost certainty. The depth and length of that recession is contingent on multiple factors, including the fiscal policy response from governments and the monetary response from central banks; the success of stay-at-home initiatives in flattening the curve; medical advances in treatments and vaccines; and the potential seasonality of the virus. It is worth remembering that the economy was strong heading into the pandemic. Interest rates were low and the banks, which provide necessary liquidity, had passed stress tests predicated on worse scenarios. People have shown time and again that they do recover from even unthinkable crises. That innate trait will be tested severely this time, but we will come through.

Market Commentary March 2020

Have you seen that sci-fi movie in which the nations of earth are going about their usual business of trying to exterminate one another, until alien ships fill the skies, and then we all pull together like a team to crush the bug-like monsters? The coronavirus is that alien invader, and its presence has eliminated all talk of trade wars. The trouble is, we are only part way through this movie, and the bug-like monsters are winning all the early battles. With over 100,000 reported cases worldwide and more than 3,000 deaths, the mortality rate is higher than that for seasonal flu. Fortunately, the rate of infection appears to be slowing in China about two months after the virus was first identified. The fervid hope is that COVID-19 retains its relatively low lethality and is contained and eliminated before it mutates into something worse.