The 1918 pandemic does not necessarily chart the course of the current pandemic. In 1918 the world population was 2 billion versus today’s densely populated 7.5 billion people. Air travel for passengers did not exist until 1919, so populations were more isolated from each other. The mobility of today’s population increases the impact of the Covid-19 virus. Comparing the two pandemics is like comparing an apple to an orange.
It is easy to feel confused and panicked by what has transpired during the first half of 2020. We are reminded of Henny Penny (Chicken Little), the European folk tale, where Chicken Little shouts the central phrase, “The sky is falling!” As Chicken Little discovered it was perspective and misunderstanding that drove her fear. The moral of the story suggests investors need to have courage even when it feels like the sky is falling. Fear is a complex passion. The fear of being near the edge of a cliff might well save our life. The fear that runs through investors’ veins may overshadow or cloud the anticipation of a market recovery. Understanding our fears can help us gain better outcomes during volatile times. This chart provides some insight on past bear and bull markets as we navigate through this pandemic.
Our observation is that every investor is different, influenced by various information from multiple sources. The chart above has a different story from each peak to trough, but it does have a common theme - in all cases it has a beginning and end. Your view of the chart will depend on where you are in life and where your fear gauge is during the downside.
2020’s second quarter restored most of what was down in the first quarter, but as Yogi Berra said, “It ain’t over until it’s over.” We are not suggesting that we are on the other side of this pandemic. We know there are better treatments and prospects for a vaccine than we had at the start of this pandemic, but it is not over.
There is a disconnect between Wall Street and Main Street (consumers). Although markets around the world have risen, economic data continues to send mixed messages. As economies around the world re-open the spike in employment numbers are positive but somewhat expected as the workforce returns. Concerns now are that furloughed employees are being permanently laid off as industries come back online slower than initially expected. Analysts, economists, and global strategists forecast 2021 or 2022 as being brighter once a vaccine is approved. One of our clients said, “if we don’t have high expectations, we won’t be disappointed.” Hopefully, our expectations of a vaccine will be met but if they are not, we hope to help our clients maintain a steady investment temperament to withstand temporary market volatility in the short term.
The ripple effects of the virus are still being sifted through, and no one knows the outcome. The Federal Reserve and the Treasury (through Congress) have put the economy on life support with the massive injection of money into bond markets along with stimulus packages to aid businesses and individuals. Adding to this, we are in an election year which typically adds some volatility. Consumers are the silver lining. As creatures of habit they are the most resilient and will return to their normal practices, resuming travel, entertainment, and normal consumption. It is not a matter of if the consumer will be back it is only a matter of when. A vaccine will restore the consumer by removing the fear and anxiety due to the virus. The consumers will remove the economy from life support as they have done repeatedly over past downturns.
In the meantime, we have identified and made changes to portfolios to prepare for the next leg up when a vaccine is made available. There may be some setbacks along the way to recovery, but consumers find ways to adjust to economic and fiscal policies around the world. How long this recovery will take is yet to be determined, but we will look back one day knowing that we did get through it.
We hope you remain healthy and safe during this pandemic. We appreciate your willingness to adapt to virtual meetings. We miss the face to face interactions with you and look forward to the day we will greet you in our office again. Please reach out to us with your questions or concerns. We are here to guide you through this pandemic.Thomas L. Menzel, CFP® Laura Biermann, CFP®President Vice President
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