First, it was toilet paper. Then it was N95 face masks and Lysol. Now, it’s HP printer cartridges. With our children taking virtual classes, our usage of paper and ink has skyrocketed over the last few months.
Like many American families, we are once again adapting to our new daily lives. Sports are coming back and we are now venturing outside more than we did in March. Still, we are not back to normal.
My experience is probably similar to others, and in a way, describes how the overall economy is doing: some improvements and some setbacks.
Since the economy has rebounded from the spring national lockdown, consumers have increased their mobility and spending habits. The question of whether the economic recovery looks more like a “V”, a “U”, or a swoosh, should be answered with a “yes”.
That’s right. Depending on where you live, your employment situation, and the industry you work in, you may either have had a limited impact from COVID-19 or you may still be struggling to get back to a normal way of life.
Parts of the economy have recovered very well such as housing and online retail; other parts are still on their way to recovery such as lodging and air travel. Even though the elections are now front and center, a broad economic recovery might not happen until well into 2021.
Whether you are a stock investor or a bond investor, the outlook for a continued but gradual economic recovery will most likely drive your asset allocation. As a fixed income investor, a vaccine and better than expected economic data should drive bond yields up which will negate the meager income currently generated. Equally, equities should react positively and capture a lot of the better news. Of course, an increase in infections and any setbacks in recovery will put pressure once again on asset prices.
Nothing goes up in a straight line and that should be the expectation for how the global economy and stock market continue to recover: a stop-start world.
For example, the Nasdaq rallied 76% from March to Labor Day but has dropped almost 10% since September 7th. Has anything really changed in the last month to warrant this correction? Sure, some technology stock valuations were high and a rotation into cheaper sectors made sense and is probably healthy.
The famous investor Benjamin Graham once said, “In the short run, the market is a voting machine but in the long term, it is a weighing machine.” Going back to my opening statement, the supply squeeze in ink cartridges will eventually disappear and something else will be in short supply next month. The same can be said about the stock market – there isn’t any statistical data that shows that stocks will be up or down on any one given day, but over the last twenty years, a well-diversified portfolio has grown by ~6%, and that’s worth focusing on.
If you have any questions or want to have a conversation about the market or your portfolio, please contact Liz, Ed, Fred, Scott, Tyler, or myself. Your Sendero team is ready to help.
Amaury de Barros Conti