FOMO and the D student

I hope you’re well. I would ask how your summer is going but I would guess it has been like mine. It seems like it has been the same month for the last few.

In our world, we’ve been enjoying the extra time at home as well as fully exploring the beauty that is Charlotte County and the surrounding areas. We even rented a boat and I took my kids out fishing. Don’t worry – we left plenty of fish still out there. 🙂

With everything going on around the world, we’re grateful that we’re safe and well and in a location where there is so much to do outside. We hope you are, too.

So, what’s going on with the economy?

Well, hopes for the “V-Shaped” economic recovery seem to be fading. Though businesses reopened and millions of people got their jobs back, millions more are still unemployed. And more layoffs are likely coming, given what we see in states like California.

Does that mean we’re still in a recession? Technically, we won’t know until Q2 and Q3 economic data are released. Best guess? We’re probably still in a recession.

The more optimistic recovery scenarios depended on containing COVID-19 infections so Americans could safely get back to business. That…didn’t happen.

The question now is whether rising infection rates will put us in a “W-Shaped” double-dip recession, or a slower “L-Shaped” or “Swoosh-Shaped” climb back.

In many ways, our local economy is a microcosm of the larger state of affairs.  COVID-19 cases have increased in Charlotte County, and while we still have a way to go before we’re on solid ground it feels as though there is light at the end of the tunnel. Our ability to bounce back depends on a few things: 1) keeping infection rates down; 2) workers keeping the jobs they have and returning to the ones they lost; 3) folks shopping, eating out, and spending money.

In terms of markets, the recent gains make it clear that traders are looking past the current gloom to a hopefully rosy future.

Are they clairvoyant? Foolishly optimistic? Not optimistic enough?

We agree with Yale economist Robert Shiller’s take: he thinks this is a FOMO market driven by the Fear Of Missing Out. Many traders regret not jumping into the 2009 rally and are determined not to miss out again. That psychological narrative is pushing up the market even in the face of bad news.

Will it continue?

We’re in earnings season, and investors are waiting to see how badly U.S. companies were damaged last quarter. Since many companies have refused to release earnings forecasts, we’re prepared for surprises. Positive and negative. Stocks can often move higher after a bad quarter when an awful quarter was expected.  Think of a straight “D” student who brings home a “C+” report card. His parents are thrilled because their expectations were so low (he’s not in jail anyway).

Bottom line: Buckle up, we think we’re in for a choppy ride with large moves (both up and down) as the markets try to digest the hit to earnings and what this will mean going forward.

That’s all very interesting, but how does it affect us and our portfolios?

While domestic stock markets should move around significantly, we have taken moves to dampen your portfolio volatility. Across our portfolios we have increased exposure to assets that do better during bouts of market turmoil. Additionally we have some dry powder built into the portfolios, which we can tactically deploy if the market presents us opportunities. When times are tough, and headlines are overwhelmingly negative, it becomes harder to find the good news. But it’s there.

A New Jersey hospital once described as a “war zone” now has zero COVID-19 patients.

17 COVID-19 vaccines are in human trials. At least one may be ready for approval by the end of 2020 (fingers crossed).

A young man who lost hope of attending college is headed to Harvard Law after the good people he met as a sanitation worker took him under their wings.

Uplifting stories are out there if we look for them. Keep your spirits up as we are one day closer to this being over.

Stay Safe and Have a great weekend.