FDR, Fad Diets and Fuller

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At the peak of the Great Depression, and during his first inaugural address, Franklin Roosevelt declared, “(L)et me assert my firm belief that the only thing we have to fear is…fear itself.” Although the fear we are experiencing, today, is not quite the “…nameless, unreasoning, unjustified terror…” that FDR spoke about, COVID-19 is certainly having similarly paralytic effects on the economy and the world, as a whole.  As we all continue to pray for those affected by the virus, we encourage you to be resolute. It is our firm belief that, for the vast majority of Americans, panic-induced selling will prove to have a more damaging effect than contracting the virus, itself. With the Federal Reserve slashing rates, we expect to see even more “paper” losses. But, remember that such losses on your statement, just like gains, do not become “real” until you sell a position.  Until then, the number of shares that you hold in each investment remains intact, albeit a little skinnier due to the yo-yo diet in the market.

What started out as a supply chain issue in China has now turned into a global economic demand problem.  COVID-19 is impacting travel, meetings, sporting and entertainment events, schools, and leisure industries.  These actions will lead to some sort of economic downturn, but it should be short-lived, as demand still remains and will continue to be pent up during these shutdowns.

On top of the COVID-19 fears, we have Saudi Arabia and Russia fighting over oil prices. This caused a -29% weekly decline in oil prices last week, as oil inventory flooded an already saturated market. Overall, this should be a positive for most people in the form of lower oil and gas prices. That said, it could be painful for those in the energy sector and in the credit markets that have energy exposure.

Last week:

• The Dow dropped -10.4%
• The S&P 500 lost -8.8%
• The NASDAQ fell -8.2%
• Russell 2000 (small caps) plunged -16.5%

Both the Dow Jones and S&P indices have dropped more than 20% from the all-time highs set in February, which means both are officially in “bear market” territory.  Where the real danger lies, though, is that the markets appear hardwired to the soundbites coming from Washington. On Thursday, after President Trump announced a European travel ban, the Dow plunged 10%. But then on Friday, after Trump declared an emergency and plan for economic stimulus, the Dow rallied over 9%.

In times like this, we’re reminded of Philippians 4:6-7 “Do not be anxious about anything, but in prayer and supplication with thanksgiving let your requests be made known to God. And the peace of God, which passes all understanding, will guard your hearts and minds in Christ Jesus.” 

English author and theologian Thomas Fuller is credited with coining the phrase, “It is always darkest just before the dawn.” It’s dark now and will likely get a little darker before all is said and done.  Reaching market “bottom” is a process, not an event or a single day.  For a bottom to be in, we will need to see more intra-day reversals, real buying pressure on up days, and dividend stocks leading the markets higher. Currently, the S&P 500 is yielding 1.9% and Dow is yielding 2.4.  Both are yielding far more than 10-year bonds and bank rates. This means that, eventually, investors will come back into the stock market to get these higher yields.  When that happens, we feel that dawn will begin to break.

In the interim, remember that this crash diet is not sustainable. Just like the fat cells in our bodies, the number of shares we own does not change unless we sell and get rid of them (a la liposuction); the cells simply expand and contract according to our diet.  Our statements might look a little like Olive Oyl for a time, but we’ve been blessed with an extraordinary time of plenty over the last decade, and we’ll, undoubtedly, find ourselves somewhere between Popeye and Bluto before too long. If you have cash on the sidelines, you may want to consider slowly getting some of this money to work (purchasing “on sale”).  Good companies will bounce back, and our “Proud to Own” stocks are high quality companies with strong annual sales growth and robust annualized earnings growth. That’s like a can of spinach just waiting to be squeezed open!

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