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July 2020 Monthly Review

"You Can't Always Get Want You Want"

By Loyd Johnson, Chief Investment Officer
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Loyd Johnson PhotoA Look Back

The classic song was released by the Rolling Stones on their 1969 album Let It Bleed.  It was originally on the B-side of Honky Tonk Woman. Although it never reached the top 10 in the charts at the time, in 2004 Rolling Stone magazine ranked it as the 100th greatest song of all time for its simple message and easy sing-a-long chorus.

Hearing it recently, it was the line right after the title that caught my interest when thinking about our current economy and markets. As we all try to adjust to this new world that the Coronavirus Covid-19 has thrust upon us, we may very well find that, although not getting exactly what we want…(a definitively working vaccine)…if we try...we just might find what we need.

We are all desperately trying to find some return to normalcy as we deal with changing work environments, school re-openings, a faltering economy, and a health scare unlike any we have seen in over a century. And during it all, to give us at least a little of what is needed, the stock markets have performed amazingly well since the lows made on March 23rd earlier this year. 

July saw the big-cap S&P 500 return 5.64%, bringing the YTD performance to a positive 2.38%. That is not a misprint…we are now positive on the year, and with the first week of August following through, we are only a percent or so off the all-time high in  the index made on February 19th. Emerging Market stocks delivered an even better performance of  +8.94% for the month, while every other asset class shown above was in positive territory. The apparent “decoupling” of the healthy stock market bounce compared to what we are seeing in the economy has many scratching their heads.

From double-digit unemployment and historically negative GDP, to retailer after retailer announcing bankruptcy plans, the headline news has not been a place for the weak of heart. And yet, because the market is driven by other factors and is optimistically pricing in a better world than we see currently, stock prices continue to climb...and give us a little of what is needed.


A Look Ahead

Where to start? One of the factors helping to propel the equity markets has been the common refrain of, “where else am I going to put my money?” With short-term rates at zero and Money Market funds giving investors next to nothing, many are looking to stocks for return. Also, there has been some initial good news on the medical front with potential vaccine progress and improving therapeutic measures in fighting Covid-19. In addition, companies reporting 2nd quarter earnings have been beating a relatively low bar of earnings estimates that were reduced as a result of the global pandemic. 

We have written often about the resiliency of our markets when facing a crisis. It has been proven over a long period of time and many data points. We do not want to minimize what we have seen over the last several months from the markets. However, we have scratched a head or two and wonder if perhaps the rapid recovery in stock markets has been a little too rapid.

The U.S. government, through legislative acts and the wand- waving of the Federal Reserve has injected over $7 trillion dollars to tackle the economic damage done as a result of the ongoing pandemic. Without going into an Economics 101 class, if it were that easy to just print money whenever there was a problem, countries would always do that until things reversed and there would never be recessions! So, we are concerned about the longer- term implications and worry that the “Goldilocks” assumption currently being embraced may result in porridge that is not just right…For now, we have reduced client allocations back to neutral and continue to try and find what we need.