In mid-March, the market was in the middle of a historic crash. As if fear of the COVID-19 pandemic wasn’t bad enough, there was fear that our financial systems were toppling. Few people were even talking about crisis number three, the utter and complete implosion in the oil market.
In April, we were in the middle of social and public health experiments that will be debated forever. The scale of stimulus spending is mind-boggling. Public and private organizations and governments around the world are throwing everything they can at this pandemic, and it appears to be working.
With economic life support coming in the form of government stimulus, the market has rebounded 27% from its lows and, for the moment, appears stable. Perhaps even a little overheated in the short-term.
Stepping back from the day to day, it’s a little hard to tell if we’re still on a ventilator, or just in intensive care. However, one thing is clear: we will get checked out, but once we do it’s going to take a while before the economy will get a clean bill of health.
What to Do Now
This is a challenging time to invest because we don’t know the timeline before a significant portion of the economy can open back up.
On the one hand the market could go lower if the situation worsens and the timeline to reopening is extended. In that scenario the collateral damage will be far greater, and we will need more stimulus, which comes at a cost.
On the other hand, if the virus infection curve continues to flatten and then goes down soon (as is expected), and we can begin to incrementally open up the economy (likely with masks, more testing and maintaining social distancing), the collateral damage could be less than feared.
Thinking big picture, what we know is that massive crises require government intervention. This is often the best time to put money to work. Yes, risks and uncertainties are high, but stock prices and valuations are low.
History has shown these opportunities don’t come by all that often, so if you have the cash and a long-term investing plan, you should invest, at least a little.
I find it encouraging that conversations have turned back to fundamentals. The focus isn’t necessarily on Q1, or even Q2, which is sure to be a disaster for many companies. Even Q3 remains somewhat up in the air.
But by focusing more on companies that should get through the next two quarters and be well-positioned in Q4 and into 2021 I think investors can do quite well. At that point the consensus is that we will be exiting a recessionary environment driven by the COVID-19 pandemic, and companies should once again show their true colors.
This isn’t to say it’s time to get super-aggressive. There are still big hurdles to get over. But the trends suggest we could be in the early to middle stages of a market recovery, complete with expected bouts of volatility, and that means continue to average into select opportunities.