Dave Wickersham, CEO
We have now been in this pandemic process since the first part of February, and the end is not yet in sight. Many cities and states are planning to drop their stay-at-home rules and guidelines, yet there is nothing to indicate a national recovery from this recession that is getting deeper by the day. Also, the unemployment numbers will continue to increase and stay high longer than necessary because of the “help” provided by the federal government. Many of the significant employees that were laid off from restaurants and retail have incentive to not come back to work until August since most are making more money on unemployment (approximately $20 per hour) than they make in wages under normal conditions. This additional payment will run out in July, but that means an additional delay before many of these important small businesses will go out of business before they can get back to full staff. In contrast, the PPP loans from the SBA only provide two and a half months of salary support for these employers that have kept their employees on payroll. With 24 million filings for unemployment in the last three weeks, we are headed to an unemployment rate around 16% according to Goldman Sachs.
Volatility will remain high as the news cycle continues to bring information that is either perceived as good or bad on an intraday basis. At this point, I believe that the markets will have another selloff that should happen in June and then the recovery should resume unless we see additional “black swan” events that could have more impacts to either the up or down side. If Kim Jong Un doesn’t return to public life in the next 2-3 weeks, that could cause concern even though it should have almost no impact on world or US economies. Potential Middle East disputes could also have an impact even though the United States has become energy independent. We may see a new “spike” in COVID-19 cases after we reopen the economy. These and many other unknown events will continue to give national media fodder for reporting, and the algorithm/computer traders will exacerbate each market swing. These short-term trading issues should not be a reason for our clients to step away from equities until we see either an uptick in interest rates or a clearer picture of what will happen in the economy in 2021. The recession will probably last until late-1st quarter or mid-2nd quarter of 2021, and the market will be digesting the drop in earnings and GDP through at least the 3rd quarter of this year. Because the markets always anticipate future events in the economy, we should see significant rebounds in stock prices in the 3rd and 4th quarter of 2020. Growth and total return portfolios will probably fare best through the current short-term cycle and probably throughout the bear-to-bull market cycle we are looking at until after the pandemic is behind us. It is important for us to remind our clients that they should expect to see some wide swings along the way. I also believe that active management will outperform passive because this will be more of a market of companies and stocks, not sectors. I am comfortable, however, with index annuity point-to-point products now with the caveat that caps and participation rates are subject to – and will – change as insurance companies come through the low interest rate economy.
It is important that we do financial planning with our clients to assure they have adequately planned for and are correctly adjusting to the future. As the markets change and retirement, college, and life planning need to change, it is important that we are there for our clients to work through clearer expectations. Many of our clients are open to reviewing their retirement savings as well as life, long term care, and disability insurance planning, and they may turn to someone else if you are not providing these services and advice.
I’m concerned about the long-term (five years plus) outlook for the economy because of the amount of money that has already been “created,” the amount being demanded by cities and states to bail them out of the deficits they already had coming into this, and the addition of the new losses caused by the pandemic. There is no way our economy can grow out of a $35 trillion debt without significant inflation to devalue the cost of money. For those of us that lived through the late 1970s and 80s, we remember what 10, 15, and even 20% inflation does to everyone. I do not currently see any other way out of this type of scenario. There will be ways to prosper through that time, and we can make some predictions about what to advise our clients if and when we get there, but we will need to help them get through the current recession to see how fast and how far the economy falls. The next phase of this pandemic economy is here, as we all begin the process of coming out and re-starting the economy over the next few weeks and months. There is a light at the end of the tunnel, but it is still not close.
Stay Safe and God Bless,