Market Commentary 5/31/2020

By: Matt Garrott

Before our monthly commentary, I’d like to address the question we’ve gotten most often:  How are the folks at Fairway doing?  It is humbling to be in your thoughts, especially in times like these.  We are doing well and are fortunate to have been able to transition to a work-from-home stance relatively seamlessly.  It may feel like time has slowed over the last months, but life has not stood still.  When we return to the office, not only will we be celebrating several missed birthdays, but one of us will be returning as a new parent and another as a new grandparent! 

Fairway remains committed to proactively applying our expertise as stewards of our clients’ wealth.  We pride ourselves not only on the quantifiable results of our efforts, but also the peace of mind our clients enjoy.  As always, if anything has changed in your financial situation or if you just want to talk, reach out to us.  Chances are, we’ll be reaching out to you soon, too.

This Commentary is Already Out of Date

If there’s been one identifying factor to this year’s financial data, it’s rapid extreme moves.  The unemployment rate began the month at 4.4% and is now 14.7% (probably still an understatement).  Oil futures briefly traded negative in late April, but are now firmly in the mid $30 range.  The S&P 500’s 34% drop from its all-time high in February only took 33 days.  The following 32% rally only took 37 days (the S&P 500 is about 38% up from the March bottom now).  By the time you read this commentary, it’s likely that more numbers have shifted significantly.

Headlines were mostly negative, but the markets moved up in May.  The S&P 500 rose 4.76%.  Small and Mid Caps, International stocks, and real estate followed suit.  Is there a disconnect between Wall Street and Main Street?  Who is right?  Markets or news?  Charles Schwab’s Chief Investment Strategist, Liz Ann Sonders, addressed this in an excellent commentary.  In short, she sees unprecedented monetary and fiscal support bolstering the markets.  Good news on Covid-19 treatments has also led to outsized one-day gains.

Maybe the markets are pricing in the bad news, though.  We should bear in mind that small and mid cap stocks are still down 15% on the year.  International stocks are down 15%.  Real estate is down 15%.  Perhaps the markets did price in the bad economic news, but we’ve been looking in the wrong places to see it. 

That doesn’t mean we should panic-sell out of stocks.  First Trust’s Brian Wesbury had a great line recently about scary versus dangerous.  To paraphrase, just because something is scary doesn’t mean it’s dangerous.  Not recognizing the difference can be hazardous to an investor’s wealth.  The headlines are scary, but things are already turning around.  Economic indicators such as new car sales and home sales seem to have bottomed in April.  There are still some lagging indicators that will look scary.  Unemployment numbers trail reality and we expect NBER to confirm we were in recession earlier this year.  This will likely drive more negative news stories that will sound scary, but are no longer dangerous.