It feels as if we haven’t had a single bit of good news since the start of this crisis. That’s not true of course. A few countries have had some success, but the negative news has significantly overwhelmed it.
Higher and higher infection numbers, devastating deaths, dire economic projections, pictures of empty shelves, shuttered businesses and “stay home” orders have dominated.
The result has been stocks, bonds, gold, and oil have all gone down. Almost everything is lower this month except for guarantees and cash as we search for good news.
BUT TODAY, we have a glimmer of hope. A tiny ray of sunshine is emerging as Italy’s infections grew by the slowest amount, approximately 8% since the beginning of the crisis and Germany appears to be having success flattening the curve as well. See images from Johns Hopkins data.
This is great news for the country of Italy, and those of us looking to estimate what the scenario could look like here in the US. It took Italy 32 days from the first 100 community spread infections to flatten the curve. It took Germany 24. If we’re on the same time-frame as Italy, we should see our curve flatten by April 4th. We’ll hope before.
Add that ray of hope to a $1 to $2 Trillion stimulus bill that “should” pass today, and we have the makings of some actual good news. Yes, honest-to-God good news! This will help our loved ones, our economy, suffering industries, the stock market, and our investment accounts.
Lest we get too optimistic though, let me quote Churchill after their first victory against the Germans in Egypt during WWII:
“We are not at the end, or the beginning of the end, but perhaps, the end of the beginning.”
We also are not at the end of our war against the virus. The stock market takes time to work through events such as these and typically goes through multiple stages. See chart of 2008-9.
1) An initial panic selloff, which stems from all bad news, max uncertainty, and no clear solution.
The month of March has clearly been the first stage.
2) A short-term relief rally following good news after investors realize it’s not as bad as feared.
Starting today brought by peaking numbers across the globe, the expectation of the passing of the stimulus bill, and good news (hopefully) on the COVID-19 treatments from Gilead, Regeneron and/or other drugs.
3) A second and final drop when the terrible economic data – high unemployment, slower GDP, falling earnings – accompanies the fear.
These numbers will start to come in as early as Thursday with HUGE unemployment numbers being reported, but most figures will be coming in April and May.
4) The stock market bottoms when the end of the crisis is in sight. Followed by hope for the future and a permanent move higher.
This will take new infections leveling off, shelter-in-place orders removed, people back in restaurants, planes and hotels. Then, it needs to be confirmed by companies reporting profits again.
Realistically, we don’t know how severe this downturn will be or how quickly the country can get back to work. The only thing we do know is there is a global effort to defeat this virus and with time it will be defeated.
To take advantage of some of this initial panic shock, we bought a little more yesterday. In the Growth Stock portfolio, we bought my wife’s favorite store Target TGT. Costco and Walmart have gotten most of the press lately for long lines and empty shelves, but Target will also benefit from Christmas-like sales in Spring. We like the company and love the stock at these lower levels.
We’re in the process of calling all our clients to talk through their current situation. We’re about half the way through the list and will be finishing those before month-end. One thing we want to stress is that each client needs to have enough cash for their distributions for the rest of the year. That way we won’t have to sell any stocks at depressed levels to fund distributions.
We’re looking forward to chatting with you if we haven’t already. Feel free to reach out to us if you need anything. We’ll either be in the office or taking calls from home.
– Bruce Porter & Tim Porter, CFP®