Clients are asking where I think the market will head, and my answer is what it always is – I really don’t know. And if there’s ever a time that shows why I answer that way, now is the time. I have read so many emails and articles by “experts” who all disagree on what the short-term future holds, and even with my Chicago MBA and theoretical knowledge of how the market works I can’t seem to make sense of anything that is going on.
We saw significant quick declines in February and March, and in hindsight they certainly made sense. What we are going through right now is certainly unprecedented in our lifetimes, and if there’s anything the market doesn’t like it is uncertainty. But then we get to April, and that’s where nothing makes sense. April was one of the worst, if not the worst, economic months ever. Incredibly high unemployment, significant declines in output, etc. And yet the market showed a significant recovery. May is looking to be similar to April.
Much of the movement in the market is due to expectations, and right now it looks like consumer expectation is that this pandemic will not have a lasting economic impact. Yet to me, that seems wrong on so many fronts. I happened to drive by BWI the other day, and both long-term parking lots and the Express lot are shut down. That has never happened. Air travel is down more than 90%, and all of the related activities (hotels, restaurants, etc.) are showing similar declines. That is just one example of the economic impact of this pandemic, and there’s no real end in sight. Even if we recover to 90% of our prior economic output relatively soon, the result will still be a lasting recession.
To put it succinctly, there is a growing disconnect between the economy and the stock markets, and I do not believe it can be sustainable.
Apparently the average consumer is confident that the government actions will prevent economic collapse, and that might be somewhat true in the short term. But as Ed Slott says – “the government just wrote a $2T check on an empty bank account.” So it’s possible we’re out of the woods in the short term, but we aren’t doing the future any favors and at some point that bill has to be paid. Tax planning is even more critical than ever.
Personally, I just don’t believe we’ve seen the bottom of the market. That being said, I have as much chance of being wrong as being right – which is why the market can’t be predicted. My only recommendation is to proceed with some element of caution. We take times like this into account when doing our plans, and in most cases it’s best to just stay calm. However, if you find yourself stressed out by the thought of any additional market declines then feel free to call me. We can discuss your situation – the result of which will be that you either feel better about where you are, or we need to make some changes. Either way you will feel better.
I still have a lot to say about bonds, and I will do that soon. In the meantime, stay safe and call or email us whenever you need anything.
Allison