Our WWII Moment
Summary
- Pandemic, global trade halted, lockdowns, 20% unemployment, riots - even my most ardently bullish clients are getting bearish.
- This market has roared back on central bank stimulus and the HOPES that we get some sort of V bottom and rebound in economic activity.
- The question is how high we bounce economically.
2020 - Pandemic, global trade halted, lockdowns, 20% unemployment, riots - Even my most ardently bullish clients are getting bearish. Quite frankly, this market has roared back on central bank stimulus and the HOPES that we get some sort of V bottom and rebound in economic activity. The rebound will happen. The comparisons are that low. The question is how high we bounce economically. The government won't let it fall for lack of funds in an election year.
Money printing has gone beyond anything ever contemplated. Congress has promised to pay unemployment until end of July so no one wants to go back to work now they are thinking about paying a bonus to return to work! This virus started so potent but it appears it is losing its potency. What if we have an economic recovery with no rise in cases and that collides with the largest global fiscal and monetary stimulus in history? Quite frankly, this was what we were supposed to do at the dawn of the crisis in 2008 - overwhelming monetary AND fiscal policy.
We didn't do that as Congress sat on its hands. Monetary policy was only enough to lift up the banks and the 1%. WW II marked the end of the Great Depression because monetary and fiscal policies were overwhelming. We don't need a war to get us out of our current rut. Massive fiscal and monetary spending ought to do it.
Throughout the crisis we stuck to our investing process. Our process has worked. We stayed vigilant to it and our clients have benefited. We have now seen the biggest 50 day rally in history. You are only as good as your last trade or what have you done for me lately. So, what's next? I think we muddle through economically but you have to leave room for the market to go even higher. The fiscal and monetary stimulus is so immensely large as to defy description - Trillions and trillions of dollars spent and it is finding its way into the market and the economy.
We have a client that always says if he keeps 50% in stocks he is always happy. The market goes up and he is 50% in. The market goes down and he is 50% out. Brilliant - if you can think that way. It's behavioral economics 201. We are straddling the two worlds of bull and bear.
The market has never been this high from a valuation perspective but valuations are not a sole reason to exit the market. Should we exit the market because of the economy? We have NEVER seen stimulus on this scale. The unfolding scenario does have a binary feel to it so we will continue to be vigilant and looking for signs of weakness while we ride this wave.
According to Ryan Detrick's research at LPL Financial after the seven largest gains in the S&P 500 over a 50 day period the S&P 500 was higher 6-12 months later every single time. …with a median gain of 1.1% one month later, and a median gain of 19.4% one year later. It's easy to think stocks have come too far too fast with the S&P 500 up nearly 40% in less than three months. However, history shows us that sharp 50-day rallies have lead to further gains.
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