Client Letter: April 27, 2020

 April 23, 2020 

Dear Valued Investor, 

“Life is 10% what happens to you and 90% how you respond to it.”

— Lou Holtz, Hall of Fame football coach 

As the battle against the COVID-19 pandemic continues, how we respond to it will determine how we beat it. Continued sacrifices range from everyone in the medical community working on the front lines to the thousands of truck drivers across our country keeping goods flowing, parents who have become homeschoolers, and folks missing their family events to help stop the spread of this terrible outbreak. As Lou Holtz said, we can’t control what happens, but how we respond to it is what matters. Our response to this crisis has shown the resolve and strength of the human spirit, which is why we will overcome. 

The response from the economy and stock market, however, has shown a disconnect between the two. Tragically, 22 million people have filed for unemployment in the past four weeks, nearly wiping out all the jobs created during the record 10-year economic expansion. Historic drops in consumer confidence, retail sales, industrial production, oil prices, and housing starts have shown how quickly our economy has gone from solid growth to virtually stopping in its tracks. Yet, stocks have been soaring the past few weeks. Remember, stocks tend to weaken before the economy, and they tend to lead before the economy turns around. Stocks see light at the end of the tunnel before the economy feels it, and the big move recently may be a sign the economy could turn around later this year. 

Small businesses have been impacted the most by the economic crisis, and the government and Federal Reserve actions to bridge the gap to better times are unprecedented. The combined stimulus from fiscal and monetary policy is more than 20% of the value of the entire US economy, as measured by gross domestic product, greatly mitigating the economic hardships. The hurried roll out of the small business loan program wasn’t perfect, but it is helping those businesses. 

This recession—though not officially declared yet—is unlike any we’ve ever seen. It wasn’t caused by the virus itself, but by the government telling people to stay home in an effort to flatten the curve. We don’t think the government can simply turn on a switch to get things back to normal, but with all of the stimulus making its way through the system, we think this could be one of the shortest recessions ever. 

First quarter earnings season has begun, and we are interested to learn how quickly corporate America anticipates the slowdown ending. Estimates for earnings in 2020 have reduced drastically, but there is still hope that a strong second-half economic rebound could help support a recovery in corporate profits. 

More than 2 million people worldwide have been infected by the virus, and we all have been impacted in some way. There are drug companies all around the world working nonstop to find an effective treatment, while Boeing, one of the hardest hit companies during this crisis, said it might start building planes again soon. We aren’t out of the woods yet, and the economic data and headlines may get worse before they get better, but our response to this crisis reinforces our confidence that the future remains bright. 

Stay healthy, and please contact me with any questions. 

Sincerely, 

Wayne Rigney

 

__________________________________

IMPORTANT INFORMATION

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. 

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. 

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. 

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy. 

Tracking # 1-05002504 (Exp. 04/21) 

Weekly Insights: April 20,2020

Client Letter: April 8,2020

April 8, 2020

Dear Valued Investor:

These are challenging times, and this week may be the toughest as we wait for COVID-19 to reach its peak in the United States. As the war against COVID-19 wages on, we continue to be inspired by the tremendous bravery shown by healthcare workers on the front lines. Other heroes will likely emerge from a lab somewhere with a vaccine in the near future. In the meantime, we have important roles to play by maintaining quarantines and social distancing.

We anxiously wait for the day when this threat has passed, as life feels very different. Many of the things we enjoy most are not available right now, such as traveling, sporting events, shows, concerts, or just dinner out with family and friends. We’re video conferencing with our co-workers while children are going to school online, and we’re finding new ways to stay connected and entertain ourselves without leaving our homes. As a society, we’re finding forced isolation can be challenging.

As we adapt to these changes in our daily lives, the stock markets have had to adapt to the new economic realities as well. The longest economic expansion in our nation’s history has ended as the US economy has entered a recession. This economic contraction is quite unique—it’s the first one brought on mainly by governments, as they closed non-essential businesses and initiated social distancing restrictions to limit the spread of the virus. It also may prove to be unique by potentially being one of the shortest recessions in history, depending on how quickly the virus can be contained.

What is not unique is the challenge for investors in navigating the bear market that’s accompanying this recession. Historically, the best time for many investors to buy stocks has been at the trough, or low point, of a recession, although the trough usually has been evident only in hindsight. Since 1970, bear market low points have occurred within an average of three weeks of the biggest increase in weekly jobless claims, something that we hope came last week. In previous recessions since WWII, stocks bottomed an average of about five months before the end of the recession, as stocks sensed improved upcoming economic data (source: FactSet). No one knows for sure when stocks will bottom this time, but looking at these data points suggests we may be getting close.

We’ve received some better news in the battle against COVID-19 over the past few days. China has contained its outbreak, and its economy is restarting. In Wuhan, the epicenter of the China outbreak, the lockdown is being lifted. In Italy, the epicenter of the European outbreak, a peak in new cases likely was reached last week, and the government is starting to plan for a restart of its economy. The epicenter of the US outbreak, New York, is starting to see a slowdown in new cases. This fight isn’t over, and we cannot fully discount another wave of new cases, but the other side of this crisis is coming into view. The stock market also has started to sense that we’re nearing an inflection point.

This is one of the greatest challenges we as Americans have faced, but some light is starting to glimmer in the dark tunnel. We don’t really have a playbook for this human crisis, though we are encouraged that the measures being taken are having the desired effects. The playbook for investing in bear markets and recessions is clearer. It suggests that we stay the course, consider selectively taking advantage of emerging opportunities where appropriate, and focus on long-term investing objectives.

Please stay healthy, and don’t hesitate to contact me if you have any questions or concerns.

Sincerely,

Wayne Rigney

 

Important Information

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

All data is provided as of April 8, 2020.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy. Tracking # 1-979721 (Exp. 04/21)

April 2 Client Letter

April 2, 2020

Dear Valued Investor: 

“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, reach for a bucket.” —Warren Buffett 

The battle with COVID-19 rages on, and the headlines continue to get worse. The number of new cases and deaths continues to grow. Individuals and companies are hurting, with even an iconic company like The Cheesecake Factory telling landlords they won’t be able to make their rent payments for April. This current situation is a human crisis, and there is no way to put a value on the lives that have been lost. However, we will get past this pandemic, as we’ve gotten past every other crisis, and we will see better times in the future. As Warren Buffett stated, when clouds are dark, that could spell opportunity for longer-term investors. 

We’re already seeing some good news on the horizon. The number of new cases may have peaked in Spain and Italy, the epicenter of the outbreak in Europe. Here at home, new cases may begin to slow within the next few weeks, while Seattle, one of the first major cities in the United States to have an outbreak, has reached its peak of new cases. Corporate America is seeing major breakthroughs as well, as Johnson & Johnson announced human testing on its COVID-19 treatment should start by September, and a vaccine may be ready by early next year. 

While we wait for containment measures to take effect and for an ultimate cure, the immediate impact to the economy has been devastating. More than 3.2 million people applied for unemployment benefits last week, more than five times the previous record, while US gross domestic product (GDP) is expected to take a historic dive. Remember, the economy can stop by either pumping the brakes or hitting a tree. Our economy has hit a tree, and the short- and long-term impacts of this abrupt halt could be felt for a long time to come. 

The double-barreled support from the Federal Reserve (Fed) and Washington’s recent $2 trillion fiscal stimulus plan won’t fix the root of the problem—only doctors and scientists can—but it may help the economy restart more quickly once the pandemic subsides. Fed Chair Jerome Powell noted we very well may be in a recession, but this isn’t a typical recession, as our economy started from a strong position. The $2 trillion CARES Act, totaling more than 9.3% of GDP, provided an additional boost. For reference, the 2008 fiscal stimulus plan was 5.5% of GDP, showing just how much larger this plan is than anything else we’ve ever seen. We view these measures as a bridge for consumers and small businesses to help them get to the other side, and so businesses are positioned to take full advantage when the economy restarts. The combined monetary and fiscal policy action may be the catalyst to propel a historic bounce back for our economy over the second half of this year. 

World War I took more than 15 million lives, only to be followed by the pandemic of 1918, which claimed another 50 million. Very few would have expected to see the boom in technological development, economic growth, and the stock market that followed during the “Roaring ‘20s.” It is always darkest right before the dawn, and our resolve and determination will once again shine through. Longer-term investors may want to consider looking for opportunities to invest in an eventual market recovery, as stocks are in the zone where adding to equity exposure could be quite beneficial. Or as Warren Buffett would say, they better get their buckets ready. 

Please stay healthy, and please contact your financial professional if you have any questions or concerns. 

Sincerely, 

Wayne Rigney

 

 

IMPORTANT INFORMATION

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. 

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

All data is provided as of April 1, 2020.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Weekly Insights: April 6

Weekly Insights with Wayne Rigney 4-1-2020