Is your market glass half full or half empty?

Recently on CNBC, financial experts took turns predicting the stock market and discussing how it is way over-priced due to the very bleak economic circumstances.  During that same time frame, another half-dozen reputable gurus suggested the worst was over, that the markets will get through this economic downturn and were leaning more towards a bullish stance on the stock market at current levels. How can experts be so far off?

First, let’s look at the case for a bear market.  Markets hate uncertainty and these are definitely uncertain times.  We have to look past the idea that times are uncertain though.  Unemployment rates are the highest they have been since World War II, sitting at 14.7%.  Many small businesses have been forced to close their doors and even more are struggling to keep them open. Some businesses are operating on 5% to 10% profit margins, bringing cash flows way down. Personal and small business bankruptcies are likely to be on the rise in the near future, potentially leading to instability within the banking sector.  Additionally, there are foods and goods supply chain issues that have Wendy’s asking, “Where’s the beef?”  And of course, we still have the COVID-19 virus out there, with no vaccine currently available. Throw in the political uncertainty with national elections only six months away and it’s easy to see why some are pessimistic about the immediate future.

Now let’s put on our optimism hats.  First, it’s important to note the stock market is generally looking six to nine months into the future.  Today’s economic numbers can be frightening but American capitalism has emerged stronger after facing worse crises. Once the economy is allowed to reopen unfettered, many will be able to head back to work thereby lowering the unemployment rate fairly quickly.  Also, recall the economic weakness was self-imposed and not due to a system-wide economic failure.  Many businesses were very strong before the crisis, providing a strong foundation for the economy upon which to rebuild.  Let’s not forget about Washington’s nearly $10 trillion of fiscal and money stimulus that should help boost the speed of the economic recovery.  There’s even a possibility of an infrastructure bill that could temporarily lower income tax rates or suspend payroll taxes.

Still need more convincing to tip your glass towards half full?  The medical world is working tirelessly to develop a vaccine to COVID-19 so it’s fairly safe to assume we will have one in record time.  And since the U.S. economy is primarily consumer driven, we can expect a rise in demand once people are able to get out and about again.  This should provide a needed boost to many industries, especially oil, restaurants and entertainment, three beaten down sectors of the economy.  While some sectors might struggle for a while, many others have already seen huge gains from the new normal. For example, a number of technology companies have benefited from increased video conferencing, internet usage, online purchases, etc.  Finally, historically low interest rates make stocks comparatively more attractive compared to fixed-income investments.  In fact, many quality stocks are currently paying dividends that are more than double the 10-year U.S. treasury bond. 

The point is that no one knows where the market is headed in the near term. There’s an extensive list of many more reasons touted by experts for both sides of the debate.  And for every guru on CNBC who proves to be right, there will be just as many who are proven to be wrong. 

So, what should a long-term investor do?  Don’t get caught up in the short-term noise. While admittedly very tempting, trying to catch every zig and zag of the stock market is next to impossible.  That’s not investing…that’s day trading and speculation.  Instead, focus on the long-term and stay with your long-term investment plan.  Manage your risk through a sound asset allocation policy created for your unique circumstances and risk tolerance.  Own quality investments, then try to ignore the inevitable market volatility and sleep comfortably knowing your portfolio is properly designed for the long-term.

In the meantime, Unified Trust will continue to choose quality investments, control investment expenses and make slight adjustments when appropriate.  The economy may not come immediately roaring back but there are plenty of reasons to expect a strong recovery over the longer term.

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