Market Commentary 7/31/2020

By: Matt Garrott

The current bull market is already four times as long as the last bear market.  The last bear was merely a month old when it expired.  The current bull market is 4 months old.  Is this the real deal?  Pre-pandemic, there was worry that the market was too expensive or (ugh) long in the tooth.  After the 30% drop, did anyone predict a 47% rally?  Now the worry is that the stock market didn’t suffer enough.  Tell that to small cap, international, and real estate investors who are still climbing back out of the hole.

GDP was down 9.5% for Q2 (-32.9% annualized).  Estimates expected a drop of 34.7%, annualized.  This is the largest quarterly drop in GDP since 1958 when the United States was hit with Asian Flu.  Most of the economic damage was done early in the quarter.  In fact, economists at First Trust calculate that if industrial production doesn’t grow at all from where it’s at now, Q3 GDP will be UP 17% versus the Q2 average.  The economy has been hurt, but it is mending.

There isn’t a playbook for this situation, but the cheapest tail risk hedge right now is wearing a mask when out in public.  We haven’t had a pandemic like this in the US for about 60 years.  This means we don’t have much practical experience, but we do have 60 years of medical and technological advancements to lean on.  Operation Warp Speed is bringing a vaccine to market faster than ever before. 

Time is moving very slowly right now.  States started shutting down less than 5 months ago and are already opening back up.  It’s just the blink of an eye over the long run, especially against a backdrop of phrases like “never again” or “forever changed”.  Will “work from home” be a permanent change?  It is too early to tell.

Bet against America at your own peril.  Many bold predictions project the extremely recent past far into the future.  They assume humanity will stop making advances in technology and medicine.  This line of thinking is decidedly un-serious, but it can help get you on TV or drive traffic to your website.

You didn’t panic on the way down.  Don’t panic on the way back up.