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Market Brief – Groundhog Day

“The road not taken looks real good now.”  -Taylor Swift Evermore

Maybe it is the grey weather and February doldrums, but it is difficult to shake the feeling of impending doom these days. Waking up in the morning can feel like Groundhog Day: check the Covid stats, read about whatever terrible political issue is happening, and look at the markets; is today going to be manic or depressed? It feels like our economy needs to go see a Psychiatrist as we are being bounced between bullish sentiment and bearish tendencies every day.

But this is how markets feel. The S&P is never going to send out a memo informing you that it is finally safe to invest and it will just go up from here. There is no surety, you will have to make decisions based on imperfect data and unpredictable futures. However, if you step back to look at the world as a whole and where it may trend in 3, 6 or 12 months you have to feel optimism. Look beyond the daily fog and tedium of a day in the life of COVID. Vaccines are coming, earnings have come in above expectations, forecasts are rising, and as we see the economy reopen, unemployment will go down.  There are certainly bearish signals that people can point to: valuations are high, and debt levels unprecedented. One must weigh those signals against the bullish ones, which in our opinion, outweigh the bearish points.

As was often quoted in the early bull market recovery off the 2008 crisis “don’t fight the Fed.” This still rings true. Both fiscal and monetary policy are very bullish. The Fed has committed to keeping rates low for years, and the Government is poised to pass a $1.9T relief bill aimed at stimulating the economy. Those two factors alone are large drivers of continued market stability. We also feel we are only in the early or middle innings of a secular Bull Market, like the 50’s or 80’s, which is a strong support for staying in stocks through corrections.

The unknowns lurk, but do not let the fear of what could happen, prevent you from seeing what is happening. The what-ifs will always dog us, but one cannot let tail risks be the main driver of investment policy. The whole point of analyzing risk is not to say that something is definitely going to happen and be an alarmist, but to open your mind to the possibilities that it could happen and get comfortable that they are unlikely. The Yellowstone Caldera is a few thousand years overdue, or maybe the Mayans have another doomsday calendar for us? Possibility is not probability.

Keep your investment Zen balance, focus on the long term, and ignore the noise. For Goodness sakes, do not take your investment advice from social media, for example: Reddit.