Singing in the Rain? The Economic and Market Disconnect
The pain caused by the COVID-19 lockdowns persists on Main Street, as evictions, foreclosures, bankruptcies, and unemployment have all soared to unprecedented levels, creating an economic storm not seen since the Great Depression. However, over on Wall Street, the sun hasn’t stopped shining since early March, with the stock market staging an amazing rally based partly on hope about the future and partly on government stimulus.
The S&P 500 has roared back from its late March depths, and amazingly, is just a rally or two away from its late February highs. The technology-heavy Nasdaq recently closed above 10,000 for the first time ever, and seems poised for additional growth as the pandemic has driven major changes to consumer decision-making and demand. For confirmation, see our previous edition of Trending Today, as well as our President’s video message about the “Big Five” technology stocks found below.
What may be most bewildering is the huge disconnect between the rapid bounce-back and advance we have seen in the stock market over the past three months and the horrific 2Q, 2020 economic numbers that, in some cases, will be worse than what we endured during the Great Depression. As we have mentioned, investors are viewing this economic pain and weakness as temporary, and banking on the fledgling economic recovery growing into a more robust bounce back in 2021. The market certainly appears to be seeing the skies as mostly sunny, as investors continue to sing in the economic rain. As the market seemingly defies the pandemic and this immense economic weakness, many investors are asking “what gives?”
We see two main reasons: Hope about the future and health of our economy, and the Fed’s massive stimulus. Investors are currently attaching more weight to the prospects of the economy (and corporate earnings) recovering than to the possibility of a long-lasting pandemic and economic slowdown. The Fed has continued to provide massive amounts of stimulus, and just this week kickstarted a Main Street lending program designed to encourage banks to lend to small and medium-sized businesses hurt by the pandemic. It also announced that it will begin buying corporate bonds to support market liquidity and help make credit available to companies across the country. Additionally, the Trump administration is preparing a new proposal for $1 trillion in infrastructure spending to help revive the U.S. economy, including funding for roads and bridges, as well as 5G wireless infrastructure and broadband for rural areas.
Is this optimism fragile, neurotic, and excessive? Or is it justified, warranted, and a signal of continued (albeit gradual) improvement and economic recovery? At Towerpoint Wealth, we agree with Liz Ann Sonders’ outlook about the market (see below), and feel that while the nascent economic recovery will continue on a long, slow, yet positive path, the market’s growth will be much more frenetic and unpredictable. However, things are beginning to point in the right direction, and it is important to drive not by looking at the rear-view mirror, but instead by looking through the front windshield. Put differently (and as Warren Buffett said), “always better to buy an umbrella when it is sunny outside rather than when it is raining.”
What’s Happening at TPW
Towerpoint Wealth continues to flourish and strategically grow as a firm during these uncertain times, due in part to the strength and depth of our client partnerships, as well as the intra-firm family-first culture we cultivate on a regular basis. As the lockdown slowly unlocks, we feel fortunate to be able to enjoy more and more opportunities to spend time with each other outside of the office as well as in.
Raquel and Jonathan “lunching” at Camden Spit and Larder this week.
Jonathan and Joseph (pre-haircut) (and John Sutter in the middle) at The Sutter Club last week.
TPW Office Update
The pandemic will be a part of our lives for the foreseeable future, but fortunately, so will getting out, spending time together (albeit with masks on and standing 6′ apart), and fostering and nurturing the relationships we have with each other. And as always, whether in person or via a Zoom teleconference, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, firstname.lastname@example.org) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.