Don’t Look at Your Feet
By the time you finish this blog, you may feel like you’ve completed a Triathalon, running, riding, and swimming. 2020 feels like that. Because this year, we haven’t had the luxury of only running or riding! In our recent webinar, A Way Forward, Capital Group’s Alex DaPron, provided us with perspective for our journey, a look at where we are, and some information about opportunities on the road.
Lately, we have spent more time at home than usual, either working from home or “hunkered down.” Alex shared how a benefit of less travel was the luxury of teaching his daughters, who are 2 ½ and four, how to ride bicycles. He said he noticed how they would both get started, look down at the pedals, and fall. Once he convinced them to focus on where they were going, they started riding! This letter is our way of reminding you to look forward. We always need to look forward.
We began this year thinking the biggest headlines would be about an upcoming election and global political issues. Here we are ¾ of the way through, and a virus dwarfs those headlines, impacts the economy and markets. While we can detour into thinking politics, the market and the economy are the same; it’s just not so. They are three different impacts on the trip. So let’s take a look.
More than likely, our chance to completely contain the virus has come and gone. We know there will be regional flare-ups, but medical minds are creating promising therapies and vaccines, and there are professionals and equipment to attend to the local outbreaks along the way. The spring shutdown allowed us to keep from overwhelming our medical system.
Our economy collided with the virus….but the financial crisis of 2008-2009 gave the Federal Reserve and Congress ten plus years to create a playbook or map. (That’s the benefit of a problematic situation. We become stronger. And better prepared.) First, Congress passed the Cares Act. Clearing the roads and providing the gasoline in the form of economic stimulus quicker than ever before. This gasoline provided families with dollars they needed to keep going. Then the Federal Reserve enabled fiscal stimulus with lowered interest rates and making money available to keep businesses operating. While spending may have decreased, we have seen the acceleration of savings rates, which will help increase spending when pent up demand explodes.
Now let’s jump in the water and look at the market. Probably the biggest question we get each day is how the stock market can be doing what it’s doing with all that’s going on right now? The link between the economy and the market is weak, much weaker than you expect. There are segments that the economy has hurt, and there are other segments that are benefiting from current conditions despite the economy.
Part of the reason the market is reaching new heights is because of this great divide in business. Big businesses are doing really really well, while Mom and Pops along the way are struggling. Larger companies have a broader lane to adjust. And they are. And many are seeing their value increase.
Think of when we take that jump into the gulf….we can surf, we can swim, or we can sink. Businesses are surfing this wave from Corona. Think of the deliveries at your house from Amazon….or our homes or your neighbors! And think of the entertainment choices, whether music, games or videos we can surf to get from Netflix, etc. Companies are surfing this wave and raising the market.
Then there are companies swimming, companies like Mastercard, are hurt by lower spending but benefiting from us paying for all of the digital contactless deliveries. But some companies are sinking, such as travel entities that may never be the same. But some of those are hanging on and building a moat with their healthy cash balances. Investment shoppers are finding opportunities in all of these areas. And this is driving the market up. Along with the fact that lower interest rates have made stock dividends more attractive than interest-paying investments
The next question we get takes us back to the beginning of the trip when we thought the headlines we’d focus most on would be an election. Elections in our lifetime are rarely peaceful, kind, or do the electorate have a definite favorite. This year is no different. But politics have less to do with our markets than headlines lead us to believe. History proves that who lives in Washington’s influence is less critical than reporters or politicians would have us believe.
Study past election periods. And remember we’ve been through some very contentious elections during some even rougher economic periods. But we will only focus on one stop along the way….1973 to 1982. We were involved in a war that seemed it might never end. The top individual tax rate was 77%, and the maximum corporate rate was 90%. (Can you imagine a worse business environment?) Well, let us pile on. We had inflation rates and mortgage rates that were mid-double-digit. Oil went from $3 a barrel to $36 a barrel. And we experienced a presidential resignation. The Dow Jones Industrial Average started that period at 1003. The Dow closed that period at 1004. (The first week of September 2020, the Dow Jones Industrial Average stood at 28,000 plus.)
But a selective investment engine can drive your financial planning car to retirement or legacy for your loved ones. In the period where the Dow Jones Industrial Average dead-ended at about Exit 100, a diversified selective portfolio took you to Exit 248. A $100,000 Investment Company of America investment at the beginning of 1973 grew to be $248,175 at the end of 1982. Three hundred twenty investment professionals, including analysts and managers all over the globe, directing the GPS systems made on time arrivals possible. Difficult elections. Difficult economies. Difficult emotions call for financial plans driven by selective choices.
This blog has moved you all over the place in different ways from the economy, an election, and the market, back to home; we want to remind you always don’t look at your feet. (Your feet might be those headlines, your neighbors or brother-in-law’s opinion or a meme on social media.)
Rhonda has become famous in our family for being the bike-riding teacher, having taught her sister, her cousins, her children, and now grandchildren to ride a bike. She says the key is to focus on what’s ahead. And she says we will be here to help you stay focused on that plan always. (It’s just like riding a bike.)
Past Performance is no guarantee of future results. Stocks and Mutual Funds referenced were for illustration purposes only. This is not an offer or recommendation to buy or sell any investment referenced.