As we get though the first part of May, the markets have been pretty uneventful over the past few weeks relative to the end of March and beginning of April.  In fact, pretty much everything seems uneventful compared to the end of March and beginning of April.  There have been a few large daily ups and downs, but for the most part the stock market has been steady since the initial fall and partial rebound from the COVID-19 pandemic.

As we stand today, May 6^th, the S&P 500 is down around 12% year to date.  While that sounds like a decently large decline, it certainly does not seem too significant relative to the economic uncertainty that we are currently facing.  We have already seen the majority of quarterly earnings reports, and by and large, there were not a ton of surprises.

Many companies that you would expect to thrive in this environment, such as online shopping, online meeting chats, some bio science companies, and others have done well as expected.  On the flip side of that, many brick and mortar retailers, restaurants and restaurant suppliers, and many small businesses will likely continue to struggle with the pandemic as we begin to see life stride toward normalcy again.

Is the market currently priced accurately? This is a loaded question with so many different viewpoints.  As we look at it today, there are several factors at play.  These factors include but are not limited to:

• Vaccine and a Return to Normalcy– It is always important to remember that the current price of the stock market is not a reflection of what the economy is doing today, but merely an estimate of where the economy will be in the near future (6-9 months), which is why the stock market is considered a “leading economic indicator”. This becomes quite difficult to predict when there is a large hurdle to economic activity that does not have a definitive timeline to completion.  What we do know is that antibody tests and a vaccine are a sure-fire way to get this hurdle out of our way and get the economy moving back toward the capacity that it was at prior to the virus.
• Government Stimulus– As you may know, through the CARES act, there are several different avenues that the Feds are going down to keep the economy afloat. Much of the stimulus has been targeted toward individuals under a certain income threshold, small businesses, large businesses that have been very negatively impacted such as airlines, and most recently hospitals and municipalities.  It is difficult to accurately price stimulus money such as this into the market and know exactly what the effect will be on the economy, which gives analysts some margin for error.
• Earnings – where the “calendar” first quarter was only partially affected by the pandemic, the entire second quarter will most certainly be affected on every level. Historically Wall Street has done a pretty good job of estimating expected earnings for companies, but this one will likely be a little bit trickier to fully predict.
• Business Failures and Unemployment– The longer that it takes to get people back together, the larger the fallout will be with small businesses, and in some cases, large businesses.  The longer this goes on, the more businesses that will fail, which means more folks will be out of work.  No doubt that the stimulus will help businesses in the short term, but as this drags out, the stimulus money will likely run dry for many of these small businesses, which is a danger to unemployment numbers as well as the banking system.

All of this said, the one conclusion that can be drawn from this information right now is that the outcome of the economic impact to our economy is not known yet, but the sooner we can get back to work and out in public, the less this will impact our economy in the long term.

Our strategy at MPWM is to continue to hold the quality assets the we are holding, take advantage of the down market by investing cash and rebalancing at opportunistic times, and continue to find avenues that will allow our clients to participate in market upside while protecting downside risk.  Trying to time the market has proven to be a losing game, so we will keep calm, carry on, and focus on the long-term aspect of what we believe will help our clients achieve desired results.

Below is a graph of past bear markets and how the market has rebounded from those periods.  It also gives us a perspective on how this bear market relates to other bear markets in history so far.  As the current situation is still fluid and we do not know the outcome, so far, the market impact has been below the average bear market low of -42% from recent highs for the S&P 500.  While it seems hard to imagine going back to the hustle and bustle that we were accustomed to before this started, it may be back before we know it.

If you have any questions that pertain to your specific situation or accounts, please do not hesitate to give us a call!