SLC Management and its affiliated investment managers will offer their alternative investment strategies to the U.S. high net worth market.
Helping investors meet their current cash flow and future capital appreciation goals.
Unlimited access to our bond offerings and dedicated, personal support
Customized portfolios selected and managed by professional managers
Partnering with select institutional managers
Expert advice, ongoing trade support, and transparent pricing
An emphasis on solid investment disciplines and specific asset classes
April 15, 2024
April 03, 2024
TOP
Financial Industry Insights from Advisors Asset Management
On June 15, 2020
AAM Viewpoints – Recession Now Official; New Bull Market Emerges
In my Viewpoints commentary from mid-March, we were in the throes of a record selloff with a drop in asset prices across all asset classes. The COVID-19 pandemic was firmly entrenched in the northeast United States and spreading quickly. The focus was on finding ways to flatten the infection curve and provide support for overloaded medical facilities. The U.S. equity market reached its low on March 23, notching a 34% drop in a little over a month. That was the steepest drop in equity prices in the shortest amount of time in the history of the U.S. markets. The decision had been made to shut down the economy of the United States in order to hinder the spread of the virus. This is the first time in history that the U.S. shut down the economy to deal with a pandemic. The pandemic hit the U.S. economy no less impactfully than a military attack on our country from an enemy that we were ill prepared to engage.
The summation of my last Viewpoints was a look back at the last pandemic to hit the U.S. and the short-term and longer-term effects on our equity markets. We looked at the Spanish flu pandemic that came to the U.S. in 1918 which claimed a much higher toll on the global population. The Spanish flu infected 27% of the world population and killed ~50,000,000 people. Vaccines, as we know them today, didn’t exist back then and medical care was sketchy at best. The point of the comparison was to show that we had seen this movie before. In 1918 – against a backdrop of a pathogen that was attacking a large swath of the U.S. population while also being embroiled in World War I – the Dow Jones found its footing long before cases peaked and began a two-year bull market that lasted firmly into 1919.
Fast forward and what do we see now? Eerily, we see the same pattern that we saw in 1918. The equity markets bottomed on March 23, long before the number of cases or deaths had peaked. The recovery has indeed been remarkable. What we don’t hear much about is that the recession that the National Bureau of Economic Research (NBER) has declared that began in February is likely over. Both the bear market that we experienced this year as well as the short, but deep, recession have likely given way to a new bull market that will likely be with us for months or years to come.
There is a contrary argument that this bounce off the March lows is just a “dead cat” bounce and that we will resume the downward spiral in asset prices as soon as the markets figure out that a “V” recovery isn’t in the cards. We respectfully disagree with this view, witnessing many of the indicators that show a new bull is beginning and that allocations should likely be revisited.
Indicators that the recession is likely over and a new bull is born:
Moving forward we would expect the 1918-1919 playbook to continue to pan out as the markets detected the end of the pandemic much in advance of a reduction in the number of infections and mortality rate. Remember, two-thirds of U.S. GDP is consumer spending. If the reopening economy and massive stimulus continues to re-employ the millions that have been furloughed, then the bounce back and strength of the recovery should continue. Also, the Fed and Congressional stimulus should continue to be applied over the next couple of years.
We are seeing similar trends in International Developed and Emerging Markets. Our supposition for some time has been that International Markets will catch up to the U.S. markets as many began reopening their economies a month or two ahead of the U.S.
As the 1918-1919 playbook plays out it might be time to adjust portfolios for the future. For those who have been positioned in defensive areas of the markets, it might be time to think about an allocation to more cyclical value plays that have shown some recent leadership. As always, we favor a gradual change to asset allocation versus more sudden changes from one part of the markets to another.
This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit www.aamlive.com.
topics