Reopening and Rebuilding

“Good investors gather information, put that information into current and historical context, then make sound decisions.”

After an extremely sharp five-week drop, the bottom was marked on March 23rd. In the five weeks since then, equity markets have recovered more than half of that decline. A tremendous amount of energy has been expended during the equity market drop and rebound. It is hard to recall that on February 19th markets were at all-time highs, the United States was open for business, and we were all free to come and go as we pleased. So much has changed so quickly and that must continue to be the chord that resonates as the rebound takes effect.

We are all saturated with news about COVID-19 so this is going to be the last time you hear about it in this article. There is a lot that we still don’t know, and we are still being told what to do and not do. Americans hate it when they are not being told the whole story. Americans hate being told what to do. There is a tremendous amount of tension in the air and we have to be careful with our thoughts, our actions, and our accusations. We have to be generous with our support, our gratitude, and our prayers.

Equity sectors that were in leadership roles prior to the correction have quickly reclaimed them. This includes large cap, technology, and consumer sectors. Two sectors which have demonstrated particular strength are internet and information technology sectors as the country learns how to work from home, video conference, and broaden their online shopping skills. The healthcare sector has also rallied strong, especially the biotechnology sector. The weakest sector continues to be energy, as the price wars are continuing to rage right up to the new OPEC cutback date of May 1st. The financial sector also continues to be affected by the energy sector’s situation.

After a significant shock to our system, it is natural to wonder if things are going to get better, and the answer is yes, and probably a lot sooner than we think. Remember that the resonating chord is that ‘So much has changed so quickly.’ It is reasonable to believe that this pace will continue with the economy and financial markets. Financial markets have already rebounded strongly and are anticipating where the economy will be in the next few months and the rest of 2020. The U.S. economy is driven by consumer spending, which has been pent up as the consumers have been pent up.

Federal and state governments are beginning to examine reopening the country. Being politicians, they are best served by exercising an abundance of caution, so the process should be expected to start very slowly. There is a rapidly growing movement to restore jobs, which means re-opening businesses. This pressure should pick up momentum rapidly, especially in an election year, and politicians will be quick to ride any momentum wave that passes by. Accordingly, we expect the economy to rapidly accelerate into the third and fourth quarter. When jobs are restored, which will happen, the rebuilding process will be in full swing. Jobs are the key.

The U.S. economy, although it took the biggest hit, should once again regain its title as the most resilient and powerful economy in the world. Time will prove that point, but historically this has been the dominant theme. International markets have rebounded along with U.S. markets, but still lag in overall performance.  The big question is how the international community will react and respond to China. The fact remains that China is the second largest economy in the world. It will be difficult to ‘punish’ China without inflicting punishment on the rest of the world. The most important job now is the reopening and rebuilding process.         

Edward D. Foy, Manager, SELECTOR® Money Management, Chief Investment Officer, Foy Financial Services, Inc.