Nobody Knows {Part II}

Back in early March I wrote a post for this blog titled "Nobody Knows".  The basic premise of that message was that while nobody could know for sure what would happen, investors could make some pretty decent educated guesses on how certain things might pan out.  {For the record my educated guesses turned out to be pretty close to the mark.}  I'm going to return to that format today.

As of this writing markets have nearly recovered all their losses for the year and the major US indices are now positive for 2020.    While I thought back in the spring that markets had a high probability of recovering, never in my wildest dreams would I have imagined we'd be basically flat for the year.  This is especially true given what we've experienced in the past month.  Nobody knows what happens next.  That's the honest to God truth.  We're in such uncharted waters.  We've seen so much happen that six months ago would have seemed improbable and through the worst of this stocks are basically flat for the year.  I can give you a bullish and bearish case for the next six months and have no idea which is the more likely outcome.  What I do know is that if you were convinced the world was coming to an end back in the spring then you've been handed a gift beyond your wildest dreams.   I am not an advocate of being 100% in cash {studies back me up on this} but if you ever wanted an opportunity to unload all or a large chunk of your portfolio then now is a better time to think about doing that then back in the darkest days of the pandemic panic.  

While nobody knows what happens next for stocks we can look ahead and infer a few things.  First we are smack dab in the seasonally weakest time of the year.  Even in normal years stocks have a tendency to struggle in the summer and early fall months.  While the economy seems to be reopening and economic growth has started to pick up, we are a far ways from where we were at the end of 2019.  The pandemic hasn't gone away and there's also an election in November.  While nobody knows what this mixture will mean for the markets, now is an excellent time to review your asset allocation and make sure you're comfortable with your exposure in case things turn a bit rocky going forward.  

Nobody knows the trajectory of the pandemic.  Some fear a second wave.  I think that's a lower probability because I think we're learning more about Covid-19 every day, how to prevent it and how to treat those that get the virus.  Primarily though I don't think we're going to get a second wave because I don't believe the first wave has ever gone away.  We'll know more about whether I'm correct or not about that in a few weeks given the openings we've seen around the country and the protests that have generated large crowds.

Finally nobody knows what the government  will look like six months out.  What we can infer is that American politics will take a turn to the left after November given the current recessionary environment and political backdrop.  That likely means more governmental oversight and regulations for business.  It also means taxes are likely to go up after 2020.  How markets react to this is hard to judge.  Both have traditionally been seen as negative for equities.  That may not necessarily be the case this time given how much the markets have changed in the past ten years, but that has been the historic reality.

Finally nobody knows for sure who will be the next President but we can infer that President Trump has not helped himself amongst independent voters given his handling of the pandemic and the protests around the country.  He is now behind, in some cases badly, in key swing states he needs to win this fall.  Of course there are many months before the election and things can change, but the President is going to need a new strategy and likely some luck to be reelected in November at this point.  

Back later this week.