L.I.F.E Newsletter April 2020
Lifestyle
Stay at Home Survival Kit
CDC’s Official Website for COVID-19 Updates
- California Public Health Official Website for COVID-19 Updates
Food Delivery Services :
Feeling Like a Workout?
Nike is offering free access to Nike Training Club Premium until further notice, featuring on-demand class-style workouts, programs, and expert tips on nutrition, sleep, and more.
Investments
The Background
2020 began with optimism driven by de-escalation in trade disputes, low unemployment, and a strong economy. Though we were optimistic about what the year held for equity markets, we maintained an overweight in defensive sectors like Utilities, Real Estate, and Consumer Staples. Our intention had been to look for a market correction, driven by elevated valuations, as an opportunity to add to more growth-oriented sectors of the economy. Little did we know…
Fear selling from the Covid-19 crisis took the S&P 500 in 24 trading days from 3,393.52 on February 19, 2020 down to 2,191.86 on March 23, 2020, a decline of -35.41%. Some interesting trends emerged during this time. Growth oriented sectors like Technology outperformed, while defensive asset classes like high dividend paying stocks did the opposite. The ability to consume products from home through companies like Amazon created stability of revenue for modernized companies, and the overall downward pressure of the market brought these companies to an attractive price point. Ancient Chinese general Sun Tzu is credited with saying, “sometimes the best defense is good offense.” This market environment created the opportunity to invest in large companies who could weather the Covid-19 storm and emerge with opportunity to grow their revenues through the scalability of their platforms.
The Action
Throughout the week of March 16th, we sold our low volatility positions across large and medium sized companies based in the United States and bought large technology companies, with a secondary weighting to consumer staples, and healthcare/biotechnology. Going forward we’ll look to reduce our consumer staples holdings as the market gains its footing and add to growth companies and possibly industrials. We are pleased with the outcomes of these decisions, but will remain flexible if changes are warranted.
Food
Bite into these Baked Biscotti
Three variations of this Italian treat will surely make a hit, to eat at home with family or give away to friends stuck at home. Get the recipe.
Economy
While a recession may no longer be fully priced into the stock market, it has clearly arrived. On April 2, we had another glimpse into just how devastating COVID-19’s blow to the US economy has been when the jobless claims report showed that about 6.6 million people filed for unemployment insurance during the week ending March 28, bringing the two-week total to roughly 10 million. That means about 6% of the US working population has lost their jobs in two weeks, and it likely will bring the unemployment rate near the peak levels of the 2008– 09 financial crisis of over 10%. Friday’s payroll employment report, which ended the record 113-month streak of job gains, is less timely, so that expected surge will be reported next month.
For those thinking about the possibility of a depression, we would point out that the Great Depression was caused by significant policy errors. Monetary, fiscal, trade, and regulatory policies all went in the wrong direction to turn a recession into a depression. Today, the policy response has been a series of “bazookas,” all aimed in the right direction. We have massive fiscal stimulus ($2 trillion and counting) on top of zero interest rates, unlimited bond purchases, and a series of lending backstops by the Federal Reserve (Fed). Trade restrictions are easing, with some tariff payments likely to be deferred. US companies are also getting some regulatory relief. For example, the Fed eased leverage rules for banks to free up more capital for lending and to help support the economy during the crisis.
Although we don’t have clear sight into a peak in the number of COVID-19 cases yet, we continue to believe that suitable long-term investors may want to consider more equity exposure in their portfolios where appropriate. Though we don’t know if the late-March lows will hold, we believe they are in the range of an eventual durable low. If we make the assumption that we may have a good idea what the impact of this crisis may be a couple of weeks from now—both in terms of the tragic loss of human life and the duration of the economic shutdown— then the S&P 500 lows may be in. If new cases continue a steady upward climb, and markets price in more incremental damage to the economy and a more delayed recovery, the March lows may not hold.
Source: LPL Weekly Market Commentary April 6, 2020
Securities are offered through LPL Financial, member FINRA/SIPC. Investment advisory services offered through Abound Financial, a Registered Investment Advisor. LPL Financial and Abound Financial operate as separate and unaffiliated entities.
