Volume 91 No. 8 - August 2020
Remember Rip Van Winkle? In Washington Irving’s classic short story, Rip Van Winkle awakens to a new world, twenty years after falling asleep. He marvels at the changes he notes in society and among the people he knew.
A 21st-century Rip Van Winkle falling asleep on January 1 this year and awaking might be amazed at all the changes our nation and our world have experienced in these first seven months of 2020. The nation—and world—is a different place than it was on the first day of January.
In just a few months, we have seen changes that one would have expected to have taken years. However, the S&P 500 is essentially the same value now as in the beginning of 2020. Of course, the starting and ending numbers never tell the whole story.
What’s Going on with the Markets?
By only viewing the markets at these two points in time, we miss everything that happened in between. The S&P 500 fell nearly 35% from its all-time high in mid-February and then recovered to its early-January levels.
During those first seven months of 2020, of course, COVID-19 wreaked havoc on our economy and financial markets by shutting the US and much of the world down. Along with all the social and personal changes we have experienced, personally and as a society, we have also witnessed economic upheaval. The long-running bull market ended, with unemployment going from all-time lows to all-time highs virtually overnight.
Despite the market’s unanticipated fast recovery this year, amber lights are still flashing. We cannot sugarcoat the underlying challenges that the pandemic has brought to the markets and our overall economy. In the near-term, we expect a poor economy propped up by stimulus packages, but plagued by deficits, consumer and economic uncertainty, unpredictable corporate earnings and historically high unemployment rates. However, longer term we remain optimistic. The true unknown is how long the economic haze will continue: months or longer.
When the pandemic is finally behind us, we will wake up to a changed world. Many of these changes are already upon us.
Accelerated Changes
As a result of the pandemic, our society has witnessed significant changes, changes that likely would have come anyway, but they have come much sooner:
The Way We Work and Learn – Business travel has dropped during the pandemic, falling to levels not seen in five decades. This reduction in business travel forms part of a larger trend where the prevalence and positive opinion of work-from-home work arrangements have accelerated to levels we would not have otherwise seen for years, if not decades. It is estimated that the percentage of employees who will likely work from home following the pandemic will rise to nearly 50%, up from 30%. It is unknown if schools and Universities will hold in-person classes in the fall.
The Way We Eat – The pandemic has brought major changes to the restaurant industry, from shutting it down completely in some areas, to forcing it to convert to takeout-only. Touch-free transactions have suddenly taken on new importance as new safety protocols and regulations have also changed dining forever. Buffets have disappeared. We now order from disposable paper menus and even menus activated by QR code. The changes have diminished the restaurant experience from dining to eating.
The Way We Play – Few industries have been impacted as much as travel and entertainment. Leisure travel is all but disappeared. Sporting events are adapting to no fans. Weddings have had to change to accommodate social distancing. Movie and live theaters remain closed, now replaced by streaming services and gaming via the computer. As a result, our consumption of gas and oil are dramatically down.
The Way We Shop – At the expense of many local small retailers, our shopping has shifted from local to on-line. Beyond the loss of personal service, this has other impacts on local employment, delivery services, packaging and what we choose to purchase. We have also shifted away from cash to electronic payments.
The Way We Receive Healthcare – Our healthcare priorities have changed. Elective surgeries have been put on hold, we have been asked to avoid non-COVID visits to the hospital, we can no longer visit ill family and friends, and many doctor visits now utilize telehealth technologies. Traditional funerals have been discontinued.
Opportunities
The year 2020 has been challenging and without precedent in so many ways. With the pandemic and its eventual resolution, there are knowns and unknowns. However, the long-term societal, physical, and financial ramifications of the COVID-19 pandemic remain to be seen. Some things will change and change for the better. Some things will just change. There’s no way to predict the probable course of the economy for the near-term. It will be rocky and punctuated with more highs and lows.
With all change, comes opportunities. We continue to review your current holdings and will add new companies that we believe will prosper from these changes. Many traditional, established companies are well positioned to deliver our new needs, including personal care, communication and pharmaceuticals. There are also many other companies that may prosper as we adapt to these changes. We anticipate that many companies will weather the storm and emerge stronger on the other side of this pandemic.
There are more than stock market opportunities. Whether due to a lost job, isolation or poor healthcare, for many less fortunate, 2020 has had a disproportionally and dramatic negative impact. There is also an opportunity for the more fortunate to extend understanding and charity.
The pandemic has served as a catalyst for many economic and social changes that we would likely have seen anyway, just on a much faster timeframe. Rip Van Winkle would be surprised to see our 21st-century world, as we are all surprised by the changes 2020 has brought.
Let’s all hope for a less eventful second half of the year.
Investment Counsel Inc. is a registered investment adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.