Without any doubt, there is light at the end of the tunnel. The question that remains to be answered is how long the tunnel is?
There are reasons to be optimistic which have helped stock markets rebound from their lows.
There has been positive medical news related to COVID-19 over the last few weeks. Testing, treatment, and vaccine discussions are all evolving daily and generally in a positive direction. There has been talk of reaching the peak of COVID-19 cases in certain European countries and certain states in the US, and that has led to plans of re-opening countries and economies.
From an economic perspective, we wrote in our last newsletter (http://talloakprivatewealth.com/2-out-of-3-aint-good-enough.aspx) that both the historic stimulus package from Washington and the Federal Reserve’s actions were appropriate in magnitude and speed of delivery. And in response to these actions, stock markets have responded positively.
While there are reasons to be optimistic and the light at the end of the tunnel is visible, there are also challenges ahead.
The challenge of how quickly to reopen economies needs to be weighed against the risk of a second wave of infection. However, the longer economies remain closed, the higher the risk is for corporate failures and increased potential for economic and credit contagion. We continue to believe that the Federal Reserve and the US government are doing everything in their power to ensure these risks are minimized.
To further complicate the economic outlook, the speed at which consumers return to the table will influence corporate earnings for quarters to come. Just opening up an economy does not mean consumers will immediately start spending again. It is unlikely that malls, movie theatres, restaurants, concerts, sporting events, or airplanes return to pre-COVID-19 levels immediately. If the rebound is slower, employment may not bounce back immediately. With unemployment rates staying lower for longer, the speed of an economic recovery may be further reduced.
At Tall Oak Private Wealth, we have balanced portfolios for a recovery while maintaining caution. We have done this by choosing to carefully invest in securities that are exposed to growth in this environment such as healthcare and technology stocks, and by minimizing exposure to higher risk companies in other sectors such as retail/consumer discretionary, travel and oil. Portfolios have benefited from this approach with reduced volatility on the way down but still participated in the recent rebound. Dynamic active management in this environment is key to enhancing portfolio success.
There is light at the end of the tunnel, and while we don’t know how long the tunnel is, as we wrote in our blog dated March 30th, 2020: We are confident that the US and the global economy will overcome this virus and that life will mostly return to normal. People will travel again, they will eat at restaurants, they will go out and socialise.
As we consider the length of the tunnel, we also need to consider what life will look like on the other side. In our next post we will be sharing a fascinating interview with Dr. Michele Gelfand, a renowned cross-cultural psychologist who has extensive research experience in behavioural trends across societies. In this interview, she discusses the direct implications that the traumatic effects of COVID-19 may have on long-term consumer behaviour. Stay posted.
As always, we thank you for the trust you have placed in us to steward your portfolios. We continue to work hard on your behalf to ensure that we are managing your assets through these challenging times.
We welcome you to reach out to us to discuss how this impacts your personal portfolios as we remain just a phone call away.
The views expressed in this commentary are those of Tall Oak Capital Advisors as at the date of publication and are subject to change without notice. This commentary is presented only as a general source of information and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax or legal advice. Statistics, factual data and other information are from sources Tall Oak believes to be reliable but their accuracy cannot be guaranteed. This commentary is intended for distribution only in those jurisdictions where Tall Oak Capital Advisors are registered. Securities-related products and services are offered through Raymond James Correspondent Services Ltd., member Canadian Investor Protection Fund. Insurance products and services are offered through Gryphin Advantage Inc., which is not a member-Canadian Investor Protection Fund. This commentary may provide links to other Internet sites for the convenience of users. Tall Oak Capital Advisors is not responsible for the availability or content of these external sites, nor does Tall Oak Capital Advisors endorse, warrant or guarantee the products, services or information described or offered at these other Internet sites. Users cannot assume that the external sites will abide by the same Privacy Policy which Tall Oak Capital Advisors adheres to.
