One Step Forward

Friday Reflections

One Step Forward


As we head into this spring weekend, there appear to be green shoots in a lot of areas. Hospital admissions for the coronavirus are slowing in some of the worst hit areas, the Fed has come out with another package of liquidity support valued at $2.3T, and the broad US stock market index has now rallied an impressive 27% off its low on March 23rd.

Are we out of the woods yet?

Not in our view. While there are signs that shelter-at-home orders are starting to make a difference with new infection rates and hospitalization rates, there are also signs that the damage from the abrupt, artificial economic slowdown may take longer to repair than originally thought.

For many weeks we have continued to tell clients that the volatility in the markets is likely to continue in response to the uncertainty, and we still believe that. Keep in mind that “volatility” refers both to downward and upward moves in stock prices. Price movements reflect investors’ best guesses about what lies beyond the slowdown, and these last two weeks their views have become considerably more sanguine.

While we remain thoroughly optimistic about the longer term, we are still unable to predict what will happen in the economy and in markets over the coming months. We, therefore, continue to counsel patience and careful, incremental action in portfolios.

Cash flow is becoming a more immediate concern of many of our clients, as it is for scores of small businesses all over the region. The SBA Payroll Protection Program intended to help small business owners and self-employed people bridge the drop in their revenues so they can keep people employed has had a rocky start. We have been in touch with some people in banking and in finance with an inside view of the radical time frame in which they are attempting to provide a brand new program, and know that there is huge effort being put into getting it right.

As for the market, it is reacting to the intended stabilization the Fed is providing, and reading the tea leaves of coronavirus statistics. Prices usually overshoot both on the upside and the downside, and we think there is likely more downside. At the bottom, stocks will likely be too cheap in relation to companies’ fundamental values, but at that point, investors will also likely feel pretty discouraged.

Stopping short of any specific prediction, we do feel that the uncertainty of not only the problems – but also the ultimate solutions – warrant continued patience.

Positive outcomes will emerge in time, for public health, the economy, and the market. We just aren’t there yet.

Related Articles

This commentary on this website reflects the personal opinions, viewpoints, and analyses of the North Berkeley Wealth Management (“North Berkeley”) employees providing such comments, and should not be regarded as a description of advisory services provided by North Berkeley or performance returns of any North Berkeley client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. North Berkeley manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

By |2020-10-20T15:19:56-07:00April 10th, 2020|