In investing it is usually unwise to place too much emphasis on one's personal experiences to determine an investment strategy. But I am going to make an exception by describing how my own experiences in 2020 may offer some guidance on what has occurred in financial markets and what may lie ahead. The COVOD-19 pandemic began for me in late February as a source of fear for financial markets, particularly one Friday afternoon when markets suddenly dropped from record highs. A friend said that COVID had broken out in South Korea. Who knew that less than a month later New York would be locked down, the kids would be home from school and the stock market would drop a quick 35% from market highs, with some sectors even more devastated. New York City's streets were eerily quiet except for the incessant whir of ambulance sirens taking thousands to hospitals across the city. At home, Amazon became even more of a supply line both through endless deliveries as well as occasional visits to the local socially distanced Whole Foods. Fortunately, and most importantly, no one in my immediate family became sick, but we all became even more reliant on all our digital lifelines and equipment for work, school and entertainment, adding to existing digital subscriptions, software and tech equipment.
We settled in for a strange, soggy spring when, in early May, New York's cases and fatalities stabilized and began to fall, slowly at first and then sharply. The ambulances became less busy. Financial markets, after a flurry of Federal government and Federal Reserve actions, also stabilized and then turned back up. New companies like Zoom (ZM) quickly became household names. The local Starbucks reopened, then Chipotle (but not the local deli). Life didn't return to normal as much as became normalized. At the same time summer camps were cancelled as were spring and early summer vacations. My wife started cutting my hair (not hard to do) and we installed a pull-up bar to sub in for a gym membership. It was becoming clear that a do-it-yourself ethos combined with a decidedly digital life style was forging to make a new sort of economy and the rising stock market values of Apple, Netflix and Electronic Arts, to name a few, reflected this new reality.
Then on Memorial Day weekend, the death of George Floyd set off a wave of protest and social unrest on a scale that the country had not seen for more than fifty years. A peaceful protest passed right by our window one Saturday afternoon. A few days later in early June, violence and looting occurred just blocks away. The country appeared to be coming unglued, yet financial markets continued their recovery and protests became confined to only a few areas out West while a reckoning on race took place nationwide. Why did markets go up? The progress of vaccines and treatments undoubtedly helped, as did the slow reopening of the economy. In many ways, the country was learning to adapt to the virus, with business leading the way, even as politics became ever more polarized. The large tech stocks became ever more valuable, but industrial, healthcare and even some retail stocks finally began their recovery. But not all sectors recovered, with real estate, travel and leisure and bank stocks still crippled by uncertainty and the possibility of permanently changing habits.
As 2020 enters its final months, there is still much uncertainty. When will a vaccine and effective treatments become widely available, finally allowing all of us, even the most vulnerable, to resume our ordinary lives? Will the political center hold after nearly buckling under the weight of social and racial unrest, fed in part by economic turmoil caused by the pandemic and related shut-downs and mandates? What we do know is that the pandemic has left an indelible mark on our society and will be remembered vividly by our children. The world has changed -- habits, culture, living preferences -- perhaps permanently. Business and commerce have adapted, as free markets usually do. Financial markets reflect those adaptations as well as the continued uncertainty. We don't know all the answers but we can look to our own lives, and to society at large, to see who the winners and losers of a new normal are, and build our investment portfolio with those observations in mind, while hoping our political institutions can help cushion the changes wrought and damage done in 2020, a year we will never forget. Arrival Capital is here to help in 2020 and beyond.
