Murphy’s Law: “If Something Can Go Wrong, it Will”
Prince Harry and Duchess Meghan Markle resigned from their duties as senior royals, the tragic death of NBA superstar Kobe Bryant, President Trump’s impeachment trial, “Brexit”, and Iranian conflict all took place within the first 30 days of 2020. How naïve we would become when COVID-19 overshadowed it all.
The second half of Murphy’s Law says if something can go wrong, it will… and usually at the worst time. This time, the second part of that old adage is not entirely true. 2020 started on the shoulders of a record year. 2019 was a year of incredible global growth and portfolio returns. In this case, it makes sense to revise the second part of Murphy’s Law: “If something can go wrong, it will…and usually all at once. In February, the S&P 500 was overvalued and due for a correction. Then, COVID-19 developed into a global pandemic, halting output and testing healthcare systems. The trifecta was Russia and Saudi Arabia started a price war on oil. Three converging events drove global stock markets into a fast, downward spiral.
A Chasm in the Data and Performance
From February 19th to March 23rd the S&P 500 declined 34%. Then, in the next month and a half the index rallied over 30%. The global stock markets continue to climb amidst the worst economic data we have seen in over 100 years. Global Central Banks, governments, and science communities are due most of the credit for the quick recovery. The Federal reserve injected $2 trillion into the economy within weeks and supported credit markets with massive bond purchasing. Governments are financing the smartest minds in science to accelerate finding and mass producing a vaccine. The world has come together, and the markets are betting on a vaccine and a clear path forward by the end of 2020. Can this be the only explanation for why stocks have rallied? Fundamentally, the stock prices are not supported by economic data.
As state and local economies begin to reopen, some small businesses will not return. With over 35 million jobs lost, many will be permanent. During the economic shut down, many of the small and local businesses lost the battle to large conglomerates such as Target, Wal-Mart, and Amazon. You may find an out of business sign the next time you walk by your favorite shop. This dichotomy between small and large companies is directly represented in the stock market. A handful of the largest companies are carrying the markets higher. Large growth stocks are slightly positive, year to date, at the time of this writing, while small and mid-cap companies are down more than -15%.
Historically, during recessions, we see a few companies thrive and evolve into clear winners against their competition. We also tend to see more companies restructure or file for bankruptcy. As we progress through this rare time, the gap between winners and losers will likely widen.
What will summer 2020 have in store for us? A second wave of COVID-19 cases? Extended shelter at home orders? A successful reopening? A “V” recovery in the stock market? The future is elusive. One thing is certain; we will learn more about the virus and the economic and social impacts of it. Meeting friends at a coffee shop, taking a cruise, going out to eat and office interactions will all look a little different, if they happen at all. As investors we must proceed with caution, while being opportunistic. 2020 still holds a U.S. election. Tensions with China are tighter than ever. The race to a vaccine and its effectiveness are still uncertain. However, we see opportunity in sectors such as global technology companies, healthcare equipment and other evolving markets. The new normal has just started. Hopefully, we can learn from this, evolve and grow into a better world. Maybe we should be asking, how much better will things be a year from now, in 2021? Seems the stock market is becoming more and more optimistic about the future.
Please Note: We will be continuing our Summer Hours by closing the office at 1:00 pm on Fridays through September 4th. We hope you have a wonderful summer!