A Look Back
I recently came across an old episode of Seinfeld. It is one I’m sure I had seen many times, but a specific line from George Costanza caught my ear. It was the above line, which was followed by the even funnier one, "sometimes it’s the only thing getting me out of bed in the morning." Whether it is a power 15-minute siesta in the middle of the day, or even a more serious doze…sometimes a little recharge or reset is needed.
As we think about the current state of the markets, it occurred to me that if one had taken a little six-month nap from the end of February to the end of August, they would have woken up and thought not much had changed. Most stock benchmarks would be little changed to slightly positive…and although from a numbers perspective that statement is accurate, it certainly doesn’t properly illustrate the full depth of all that is going on around us.
The economy continues to slowly grind its way back from historically bad numbers across the board. The second estimate of 2nd quarter GDP came in at -31.7%, up from the first estimate of -32.9%. Retail sales, consumer spending and new home sales have all ticked up from their lows made in March and April. Industrial production and manufacturing metrics have climbed out of recessionary levels.
After losing over 22 million jobs in April and May, the U.S. economy added 1.8 million jobs on top of the nearly 5 million added in June. The unemployment rate, although still high by historical standards, continued to fall to 10.2% after peaking at nearly 15% in April.
That is certainly all good stuff, although there is still a very real uneven feeling as you talk to business owners. Perhaps unlike any time in history, the haves and have nots stand out. While some industries and sectors like service and finance continue to struggle, others like technology and pharmaceuticals have thrived. The financial markets have certainly been in the "have" camp as August saw a continued surge in the large-cap S&P 500, up over 7% in the month and 9.74% year-to-date. Amazingly, at the end of the month, the index stood 3.4% higher than the previous all-time high made on February 19th.
All of this has happened as we deal with a global pandemic that has shut down global economies like nothing we have seen in our lifetimes. Many wonder about the seeming disparity between the markets and the overall economy, and perhaps rightly so as markets have a tendency to go too fast in either direction…but it is hard to deny the resiliency of our markets in the face of such turmoil.
A Look Ahead
It is never easy looking forward, and that is particularly so now. Although not surprised with the market’s ability to bounce back, the speed and size of the recovery from the March 23rd lows are dizzying. As families send their kids back to schools with fingers crossed and businesses continue to open and navigate the new normal, much is still unknown. How quick will we see a vaccine? Will there be additional stimulus to help those that don’t benefit from a rebounding stock market? Will consumers really start to spend, which is the bedrock of a fully growing economy?
There are so many more, and oh by the way, there is a presidential election in the U.S. that has all the looks of being much tighter than many thought only a couple months ago. It is one that provokes strong sentiments on both sides of the aisle. In general, markets do not like uncertainty any more than we do in our everyday lives. We took the opportunity in August to trim our equity allocation back to neutral. With stock markets making another all-time high in early September, we believe additional volatility is likely between now and year end…and don’t nap on it!