It’s a tall order, writing a quarterly market update during one of the most unprecedented times in history. COVID-19 news and updates seem to change daily. At Gatewood Wealth Solutions, we are committed to serving as a trusted resource for our clients during this time and have been hosting weekly market updates for clients and friends. We welcome all questions, concerns, and conversations.
While there’s plenty changing in the news, market, and economy, one thing that hasn’t changed is Gatewood Wealth Solutions’ approach to financial planning and wealth management. Even in the midst of a pandemic, our first priority is to share our experience with families — so we can help them become and remain financially self-reliant. We believe that by empowering families to reach financial freedom, we’re bettering society as a whole by creating a community of givers who are equipped to support the people, causes, and communities they care about.
We are not permitted to share performance details here for compliance reasons, but please feel free to check your GWS portal for your detailed Q1 performance report or contact your lead advisor.
We like to say our GWS investment strategy is akin to “singles and doubles baseball.” We are looking for consistent returns – not trying to hit homeruns. The risk needed to hit all home runs would just create wide margins relevant to the benchmark.
In this quarter’s update, we’ll cover the key themes we’ve seen over the last few months in the midst of the pandemic, as well as our analysis of what you can expect for the future.
The Impact of COVID-19
All it takes is one glance at your computer or smartphone to feel overwhelmed with COVID-19 coverage. There are strong opinions on all sides, and it can make you feel stressed and powerless combing through it all.
You are not alone. As intimidating and overwhelming as that information can be, we are all in this together, and GWS is working around the clock to bring you the most accurate and up-to-date news that affects your financial life.
Some clients have asked us how to filter through the “fakenews.” At GWS, we approach the market with an open mind. There are certainly diverse individual interpretations of the data and narratives that follow. This virus is still new, and so is the data. We seek to understand the different viewpoints, especially when they seem contrary to our thesis, because we believe there is a lot all of us have yet to learn. What we do believe in is making sure the information you consume is based in up-to-date facts and research. We are doing our best to filter that type of news for you.
One thing about the data available is for certain: there’s much more of it than there was in March. This is simply because the experts have had more time to study the novel Coronavirus. What tends to happen with viruses is that the more information we get, the better testing we develop, and the more we find that the virus’ prevalence is wider than we feared. This is what has been happening and is to be expected. It’s not a good or bad thing, just something to keep in mind as we evaluate the data. This is especially important now that the CDC has changed its definition of how we label a death by Coronavirus.
As information continues to pour out regarding the “flattening of the curve,” South Carolina, Tennessee, and Georgia have already reopened. The entire country will keep an eye on these states’ metrics as we evaluate the pros and cons of lifting broader stay-at-home orders.
Inflation Rates & Bond Values
Our investment committee has put countless hours into researching inflation rates and bond values. The bottom line is that low inflation rates won’t last forever, and now is not the time to buy bonds. For detail on these topics, I suggest you read our Chief Investment Officer, Aaron Tuttle’s, take on high inflation risk, as well as why we believe bonds are overvalued and equities are undervalued.
Why does this matter? The size of the total stimulus package is about 25% of GDP. However, the value of the goods and services produced by the economy has not increased by that amount. In fact, it has dropped since the economy has been furloughed. This does not necessarily suggest an increase in prices of goods, but the new money could spur additional investment and cause production capacity to increase rapidly. That’s why we believe inflation is a real risk.
What’s Going on with Oil?
If you look at what’s happened in oil over the last month, that in and of itself could have pushed the US into a recession – even without COVID-19. The fact that we’re dealing with it on top of the pandemic is just another challenge.
Energy and oil are not going away by any means. But if we stay under $20 for a sustained period of time, we’ll probably see oil-related companies firing for bankruptcy.
“V” for Victory – and Recovery
We at GWS believe the data suggests a V-shaped recovery. That is because of the unprecedented amount of government stimulus, both monetary and fiscal.
If you routinely read our content, you are aware that we watch the money supply growth very closely. And we see much steeper growth now than we did after the 2008 recession. The point of keeping an eye on money supply is to levitate financial assets so we can separate that from what the economy is doing.
After all, it’s becoming increasingly difficult to monitor the market. It’s as if the market has been “financialized,” rather than pursing true price discovery through economic activity, business cycles, and so on. Now, we have this massive input of a variable that has not been captured previously.
If not for the stimulus plan, the market would be even further down. The economic situation does look fairly dire. We have a lot of people on unemployment. We’ve seen drops in oil and tax cuts, as well as the moral hazard of people being unemployed (why go back to work full-time when they’re making more on unemployment, now that both the state and fed are contributing?). All the while, people are producing less, because they’re not able to go back to work.
It follows that the stimulus should find its way into capital markets first, and that’s why we’ve seen such a sharp rebound. We see the V-shape recovery continuing, unless a second wave comes back and lockdown is more prolonged.
Our world has been turned upside down, and feelings of fear and trepidation are valid. When making decisions about your investments, it’s important to know the facts and consider the way your emotions play into your choices. In the meantime, we’re here for you if you want to talk through any concerns. We’ll be maintaining our singles-doubles baseball in the background — and will keep you updated as we all adapt to our “new normal” together.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
This Research material was prepared by the financial professionals at Gatewood Wealth Solutions. All information is believed to be from reliable sources; however LPL Financial and the financial professionals at Gatewood Wealth Solutions make no representation as to its completeness or accuracy.
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