Market Commentary for the week of June 22, 2020

We'll get through

Investors are perplexed when considering how to make sense of such variant and volatile news they encounter each day.  Whereas anecdotes might be evidence of certain representations, anecdotes themselves are not the evidence.  Thus, it is up to each of us to make sense of the stories we hear and read, and to delineate between their subjective personal interpretation and their larger objective secular meaning.

Doing so allows us as market participants and analysts to create an investment narrative whose redundancies are supported by arithmetic weighting.  The measure of an anecdote, a narrative, or a statistic can only be determined over time.  Thus, knee-jerk reactions to the market, or by the markets, are capricious, and dangerous.  It is only through recurring patterns that a really successful portfolio can be constructed in harmony with a client's goals.

Rational economics  does not imply, however, that  all of our behaviors are rational; only that data can be quantified as to their duration and magnitude.  Since we all feed from the same trough of information, the only reality for each one of us is how we interpret those quantifiable redundancies.

Is all market behavior rational or irrational?  Of course not.  That would be too simplistic.  All actors are free to draw their own conclusions about objective facts.  To be sure, socialization draws us all a little bit further away or little bit closer together when engaging politics, economics, or social justice.

Currently, though, I perceive that investors are maximizing the anecdotal content while minimizing the significance of the bigger picture.  For example, daily virus totals tend to accelerate negativity in stock market numbers.  Employment or retail figures, the kind that drove market performance last week,  strengthen the chorus of joyful speculators. This is exactly the kind of pull and drag we see each week that makes jumping in and out of stocks so risky.  But this type of overreaction is pointless when discussing portfolio wealth building.  The herd instinct is usually counterproductive to market performance, particularly when panic or crisis ensues.  Moreover, when reacting without limits or guideposts, purchasing or selling stocks and bonds becomes disjointed and irrational.

Competence and intellect

Even acknowledging that these convulsive behaviors serve a function for some, the discord that they sow upon the markets is unnerving and unnecessary.  People react to things according to their strongly held beliefs.  But I have said before, today's beliefs are being challenged in the town square, the courthouses, parliaments, communities, households, and boardrooms around the globe.  "What we value"  is changing exponentially and right in front of us.  Once upon a time economies flourished by trading animal skins.  Then it was metals.  Fabrics and fine silks followed.  Today, currencies.  Value systems are as fleeting as the epoch, and so too are trader's instincts.  How do we really  feel about clean air and water?  Hunger and poverty?  Sustainable energy?  The internet?  Wealth equity and inequality?

What we require at this point in time is a structure and process which creates best possible long term outcomes for portfolios and for citizens at large....a new social compact.  Intelligent, well-informed trading tends to do best when those doing the speculating, capital formation, and investing have more than just their own self-interest at stake.  

 

(please watch for our next publication, Quarterly Market Commentary, July 1, 2020)

Market Commentary for the week of June 15, 2020

Up is down

The pandemic playbook for managing portfolio volatility requires strong will and an appetite for looking for trouble .  The future holds more of the same.  Last week's multi-hundred point swings in either direction on the Dow Jones was symptomatic of the anticipation and trepidation that surrounds reopening the global economy; the potential for more infections; and its impact upon consumer demand, earnings, and corporate viability for the long-term.

Perhaps a knack for recognizing a vast diversity of scenarios widens one's approach to seeking capital gains, but it might also muddy the waters and dilute clarity.  The objective is to be as target-specific as possible while understanding that different theories, differing sectors, don't always intersect.  Having just achieved the US market's "best 50 day period in history" underscores the extraordinary disconnect between Wall Street and Main street.

As bills mount and uncertainty persists, smaller businesses weigh survival for just one more day versus closing altogether and losing their customers, their livelihoods, and their aspirations permanently.  Still looming large, recall, are the uncomfortable memories of the last recession (2008) during which people lost not only their jobs but their homes, as well.

Best 50 day period in their lives...?  I think not.

Absent a sustained episode of jobs re-emergence and other industrial improvements we are likely to be sitting at levels which compete with other major economic depressions of recent past.

No doubt, I welcome the portfolio relief derived from the market's current extraordinary rally, but I fixate instead upon the economy's fragile condition for the "average guy".  Look, the economy and the financial markets will return.  Of that I have no doubts.  But as steward of my client's investment assets I must also orchestrate a meaningful sequence which makes for a sustained and successful outcome.  The current social fabric, wrought with racial tensions, global pandemic, and economic wealth inequality, has changed the game plan irrevocably.

Keepers of their true beliefs before  the last 80 days may find their views and hopes changed afterwards.  There are issues yet unaddressed such as climate change, hunger and poverty, infrastructure, ecology, healthcare, etc. that might reshape the value system of the globe.  The truth is that we cannot change the social trajectory "like a rocket ship" upwards....despite the incredible flight of the stock markets from the nadir of their last condition.  You want to play the markets like a slot machine?  Be my guest.  You want to be an investor in the long term progression of life on this planet?  That might be another thing, altogether.

Down is up

Why didn't we jump in at the bottom?  First, you tell me where, and when, the bottom is...before it occurs....and maybe we should reverse roles.  Secondly, the speculators who bought on the way down come from a different breed.  My role is to protect clients from the ravages of panic selling before the damage becomes too severe by laying out an asset allocation which diversifies against risk.  These dichotomies represent two different sides of the coin with entirely different mindsets and methodologies.  I like to believe that a balanced perspective creates an advantage that doesn't allow for trespass or exogenous influence.

Let me offer two very simplistic theories for your consideration: either the markets precede the economy, in which case the market is telling us that everything is alright and we should be fully invested; or the markets lag the economy and we should be very worried that fundamentals might not sustain today's valuations.  I cannot predict the future, nor are the scenarios posited above the only choices.  But I do know that using science and data-driven methodologies to blend the two alternatives most often derives a quality outcome for clients in the real world...those who worked hard to accumulate wealth and wish to safeguard it as best they can.