Happy Fourth, and a Market Update

We hope you and your families are looking forward to a great Fourth of July holiday. We’ve finally made it halfway through 2020, even though it feels to many of us like four or five years have passed since the COVID-19 pandemic reached the US. Oregon’s stay-at-home order was only issued on March 23rd, but in the past three months many of us have become Zoom experts, cooking masters, and tutors to our kids with varying levels of success. To all of you who have survived these sea changes to your lives, especially essential workers, we salute you.

In advance of quarterly performance reports that will be coming out next week, we wanted to include an update on market performance so far this year. Since the bottom of the US stock market on March 23rd, it has been tempting to either ignore the markets entirely or spend far too much time checking performance. However, the majority of the major indices (like the S&P 500 and the DOW) have mostly recouped their earlier losses.

Those who can still stand to read the news are confronted with an unemployment rate higher than during the Great Recession, turbulent and anxiety-provoking political conflict, and an ever-growing number of coronavirus cases during states’ struggles to reopen their local economy. To them, this may not make sense, and we have heard from many clients who are confused by the gap between their individual experience of the pandemic and unexpectedly stalwart performance in the markets. Morningstar’s great article, “The Stock Market Is not the Economy,” outlines the many reasons for this disconnect, but it boils down to two main points: investors tend to anticipate future developments rather than react to present events, so they are already looking ahead to 2021 and beyond; and the vast majority (about 80%) of the US market consists of large companies that have been able to weather this storm and even grow, while smaller companies who have been hard-hit are only a small chunk, and the vast majority of “mom and pop” small business aren’t even publicly traded.

With that in mind, looking ahead to the rest of the year and into 2021, we see many unanswered questions that will likely influence how the markets perform. What will the virus outlook be as we return to traditional “flu season” that typically sees an increase in cases? How successful will states be as they continue to walk the knife’s edge between public health and economic reopening? Will the November election soothe or stoke further political divide and discontent? Can we expect further federal stimulus for those affected by the virus, and if so, what form will it take?

As of yet, the question we can get closest to answering is the last: we feel confident that there will be another round of stimulus, although when it will come and how it will work is still up in the air. Popular ideas have included another direct stimulus similar to the $1,200 payment that was passed in the March CARES Act, hopefully with fewer hiccups than the last round. The House has passed the HEROES Act that would dramatically expand this kind of one-time stimulus by upping the payment per dependent to $1,200. Another point of contention is the $600 bonus unemployment benefit, which will stop at the end of July. Whether to continue this is still up in the air. Senate Republicans have proposed offsetting the ‘bonus’ to unemployed Americans by introducing an extra payment for workers, which would be a boon to low-paid essential workers like grocery store employees and hospital cleaning staff.

Blackrock has endeavored to look ahead in their Midyear Outlook report, which focuses on three indicators they believe will predict market behavior: how successful nations are at restarting their economies while still controlling the virus spread; whether stimulus is sufficient and successfully reaches households and businesses; and what they call “resilience,” looking for whether signs emerge of economic vulnerability or permanent changes to production due to the virus. Overall, they anticipate that countries with the most aggressive public health and stimulus responses will see them pay dividends down the road as they are able to reopen faster, with fewer long-term effects.

One area where this will have massive economic and societal effects is the pandemic’s disproportionate effect on working parents, covered yesterday in the New York Times (“In the Covid-19 Economy, You Can Have a Kid or a Job. You Can’t Have Both”). As we look ahead to fall and try to anticipate what form school will take, one overlooked aspect is how a continuation of virtual schooling could seriously disrupt the lives of two-income households with minor children, around 46% of the population, or single parent households, not all of whom have extended family nearby or can afford a nanny. In that sense, our worry is not just for kids who may not get a great education or its associated social services next year, but also for families who may need a parent to quit working to provide childcare full-time. Employers who were flexible with simultaneous remote work and childcare out of necessity in March and April may roll that back in the fall, like Florida State University announced this week. This is by no means a suggestion that kids should go back to school full-time and become vectors of the coronavirus between the many households that share a classroom. However, it’s clear that a combination of innovative solutions and a boatload of patience on all sides, including that of employers, is essential to figure out a workable outcome for next school year.

As a firm, we have experienced the difficulty of simultaneous parenting and working from the top down. Many of us had difficult experiences at the end of the school year and are left with even greater respect for teachers. We’ve said before that our firm’s disaster plan, which lets us work from anywhere, was a blessing during the stay-at-home period, and we have already committed that no matter what form school takes next year, we will support our staff to ensure they can continue to work flexibly.

As always, we continue to monitor economic and market news on your behalf, and we will update you as the potential second federal stimulus is negotiated and other developments occur.