Note: This market review was published on April 9th, 2020 and may not be reflective of current market or investing issues.
Wars can be very inconvenient and last a long time. Around our office, we feel we are fighting wars on two fronts; one a health care war and the other, an economic war.
Health Care War – Obviously, this is not our area of expertise, so when life is threatened, one should at least find an expert. Dr. Scott Gottlieb is one and in his recent editorial in the Wall Street Journal this past Monday, he lays out the two ways drugs are being developed in the near term: antivirals and antibody therapies. Both of these approaches could be ready before a vaccine, which is probably still a year away. These two drug approaches would help to blunt the ferociousness of Covid-19, while the hope is that a vaccine would prevent the illness altogether. And while we are hopeful for any help, Dr. Gottlieb extends our return to normalcy much farther than our politicians, at least until year end.
Economic War – At least we have a little better understanding of the recession we have entered, and the bear market that started last month. This bear market is very purposeful and self-inflicted; the slowing down, and in some cases, stopping economic activity to slow and hopefully, stop the spread of the virus. The health care fallout created by the virus is staggering and dire; the economic cure will be just as dire. As we watch the normal monthly and quarterly statistics, so far, the real numbers (unemployment) and the estimates (GDP) are off the charts to the down side. A bear market usually follows three stages: 1) a down-side drop (or in this case, a crash), 2) an equity rally off the first low set (sometimes retracing ½ of the initial drop) and finally 3) a consolidation phase that takes the market down at least to retest the initial low, and in some cases takes the market well below the original low point. Some bear markets are relatively short (nine months) and some may last over three years, like the tech bubble from 2000 to 2003. The 2008 crisis lasted 18 months, from October 2007 to March 2009. Longview’s primary thesis is that we are currently in the upside bounce phase, which is being materially supported by Congress and our Federal Reserve Bank. While the news of Covid-19 should get slowly better over the next six to eight weeks, the economic news may get significantly worse, bad enough to constitute the third stage, a new testing of the bottom. Early on, many economists have theorized that the economy may start growing again in the late third quarter, possibly September or October of this year. Our feeling now is that it may take much longer. Richard Bernstein, in a recent Barron’s article wrote: “At bottoms, people just assume that horrific performance is going on forever and nobody wants to invest.” The same feeling many of you felt in early March 2009! Protecting your capital is our primary responsibility, and while we don’t know for sure where the market is going day to day, history is an excellent guide.
Many thanks for your continued confidence in Longview.
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