Market Commentary 4/30/2020

By: Matt Garrott

Did the month of April feel more like a year to you?  The market might agree as stocks gained more in April than they do in the average year.  The 12.8% gain is the best monthly return since 1974, but comes on the heels of March’s 12.4% decline.  Back-to-back double digit whipsaw returns haven’t happened since the bottom of the 1974 bear market.

The S&P 500 is down 9% this year, but it says more that it dropped 34% from its all-time high then rallied 30%.  The S&P 1000 (Small and Mid Cap US stocks) and the MSCI EAFE (Developed International stocks) had similar large fluctuations and are down even more on the year.  The market has endured countless bull and bear runs.  This is its first bear sprint. 

Bankruptcy

Headlines buzzed with news that Senate Majority Leader Mitch McConnell was in favor of state bankruptcies. 

The remarks were taken out of context.  The Senator was answering a question about whether states should receive Federal money specifically to shore up mismanaged state pensions.  He mentioned that it was a very different problem from the current pandemic issues.  The question also acknowledged that there is no current bankruptcy code in place for states so one would need to be legislated into existence. 

In our talks with bond portfolio managers (Jason Diefenthaler of Wasmer Schroeder and Greg Ortman of Capital Group), there is agreement that the interview generated spicy headlines, but state bankruptcy isn’t really on the table.  States are not asking for this.  As tax authorities, they  have other options at their disposal (raise taxes, furlough workers, pause capital expenditures) before even discussing whether bankruptcy would be necessary.  Legislating a state bankruptcy process would require the House, Senate, and the President to all sign off – an unlikely scenario.  Finally, bankruptcy probably isn’t feasible to solve many states’ pension issues.  The states with the most problematic programs (Illinois, New Jersey, etc) have extensive protections that would leave pension liabilities untouched by bankruptcy.

Quarantine with Intention

It can feel frustrating not acting when the news is changing so rapidly and so many voices are urging you to do something, ANYTHING, with your investments.  These voices don’t know your situation and many of them have a vested interest in increasing investment activity, regardless of need. 

Our mantra of ‘control what you can control’ isn’t all about imposing your will where you can.  It takes great effort to allow inconsequential or destructive impulses to pass by without acting on them.  Manic trading through a market downturn does more harm than good. 

It may feel like you’re doing nothing, but quarantining and sheltering in place is doing something.  The curve is flattening and it’s because of you. 

During the quarantine, I’m trying to be mindful of how life is progressing even if I don’t leave the house.  I’ve gotten to brush up on 4th grade math, 4th grade history, and taken in several recorder performances.  On the other hand, my two year old turned our TV’s language to German then ran screaming through the house with the remote.  Yesterday I attempted to dial into a conference call using my smartphone’s calculator app. You can’t win every day.