Returning to the office this week, I went shopping on Burlington’s iconic Church Street for the first time in the last six months. After being in quarantine with a toddler for the last three months I was craving human interaction. Thank you by the way to everyone who participated in phone calls and Zoom meetings with me and kindly received my daughter as our new WestView associate. The anticipation of finally being able to be out and see other people was met with a mix of eagerness and caution.
Eagerness was the definition of the restaurant owners who had safely set up their outdoor patios for their patrons to enjoy. I was delighted to see how some of the bars were getting creative trying to build out makeshift patios on the sidewalks for the first time, even if it meant only two tables could fit!
My walk down Church Street was a lot like what is happening on Wall Street these days. There were those who were clearly comfortable not wearing a facial covering and seemingly acting as if all had returned to normal. Others were wearing their masks while catching up with old acquaintances at lunch. And then, of course, there are still those who would prefer to step off the curb and wait between two cars than pass you by on the sidewalk. The market appears to be somewhere between wanting to wear a facemask while also on the brink of breaking out for the Fourth of July Block Party.
In a matter of weeks, the market as measured by the S&P500 in this case, went from an all-time high on February 19th down to -35% by March 23rd. This was the fastest move in history to a bear market, but even more shocking, is the speed at which those losses were erased by the end of Monday this week, June 8th. Now the markets have since given back some of those gains as the economy comes to terms with the likelihood of a second wave of the virus and comments made by the Fed reinforcing that the recovery isn’t just around the corner.
Many of our clients will call, email, and now “Zoom” us asking about our thoughts on the market. We continue to remain cautiously optimistic with the emphasis on caution. One measure of valuation that is commonly used, the PE ratio, values the market as more expensive than before the pandemic was declared. Does this make sense during such a severe recession? With valuations this rich it is difficult for us to justify these prices.
The statistics of COVID-19 continue to be overwhelming, yet Wall Street appears to have priced in a rapid and seamless recovery. However, there is significant risk that the longer-term economic impacts of the virus and state shutdowns are not being accurately reflected. Another wave of stay-at-home orders will most certainly lead to some businesses closing their doors for good, which lead to permanent job losses. As well, for some companies a return to normal may never happen as people have started to permanently change how they behave and consume goods.
Our advice to investing in any uncertain market continues to center on diversification and maintaining a long-term outlook. Better said by Liz Ann Saunders, Chief Investment Strategist of Charles Schwab,
“Keys to long-term investment success do not rely on the precise timing of market tops and bottoms. Investing is – and always has been – a process over time. It should never be about moments in time.”
At WestView, we have stayed true to our investment discipline of finding good companies, with wide moats, solid growth prospects and clean balance sheets. We have also made tactical shifts in our portfolios in response to the ongoing Pandemic and other geopolitical risks. Volatile times like this year are a good reminder not to be complacent or blind to what you hold in your portfolio. Maintaining a mix of properly diversified investments across both equity (domestic and international) and fixed income has historically helped buffer portfolios during the ups and downs.