Whether we get to enjoy a rally, or even stabilization, the cure to the coronavirus - absent a vaccine - appears to be global governments pushing their respective economies into recession.
We humans like a narrative, a story we can relate to, because it helps us make sense of things, and that makes us feel more comfortable. The fact that the stock market was up about 19% over the previous four months, based on very little improving fundamentals, set us up for a tumble.
Overconfidence leads investors to believe that they will be one of the few who succeed. It turns out that people who trade the most, presumably due to misplaced confidence, produce the lowest returns.
According to my colleagues, 44 percent see a recession hitting in 2020, and 32 percent in 2021. That’s two-thirds who think the U.S. will see a recession within the next two years. You can count me among them.
Still, for many investors, significant concerns remain. Some fear that the advance has been nothing more than a rally in a bear market and the Christmas Eve lows will be revisited. Others fear that stock prices have gone “too far, too fast” and now the market is vulnerable to familiar headwinds such as trade talks, slowing earnings growth rates, a government shutdown, or any other of the recent favorites.
The concept shared at Davos is similar to what we’ve been preaching: Local businesses need to embrace the new technologies to not only offer the services that their clients want, but also to use these technologies on the operations side, making their companies more efficient.
Although going through the value growth process takes one to five years, the most common question I get from business owners is “What can I do now to improve my business today?”
Negative effects will intensify and compound the longer the shutdown continues. If the government were to reopen today, the affect for this quarter would be nearly tripled due to the impact from workers not receiving paychecks.
Waterfall declines are typically not the final low; the Dec. 24 low might need to be retested—might. We’ll watch the breadth over the next few weeks to assess if the rally is sustainable or if portfolios need to get more conservative to defend against a retest.
Rising home prices and mortgage rates are slowing down homebuyers. And the higher costs of land, labor and materials are making it more difficult for builders to deliver houses at the prices which are most in demand.
You can see the yin and yang between the dangers of an international trade dispute and a U.S. economy so strong the Fed has its sights set to slow it down.
