Market Insights

Arrival Capital's Mid-Year Review -- Summer Help

As many of us were locked down in March, we all hoped for better times later in the year. Perhaps by summer, we told ourselves, things would be better and the COVID-19 virus would be in abeyance. Months crawled by. A strange Spring. Stocks bottomed and then, slowly, fitfully, recovered, especially the "stay at home" stocks like Netflix (NFLX) and Amazon (AMZN). A key point for markets (and those of us living in the New York area) was when New York hospitalizations crested and began to fall in late April into May. Vaccine and treatment news became more optimistic. Then, on Memorial Day Weekend, the death of George Floyd sent the country into a period of severe social unrest that still continues, particularly in the nation's largest cities. Despite the unrest, however, stocks continued to move higher and, as measured by the S&P 500 index, are almost even for the year, although still sliding and rising on almost any news about the number of virus cases and treatment or vaccine development. Tech stocks are meaningfully higher on the year.

Many Americans rightly feel the country is in the midst of unprecedented turmoil, with COVID-19 still a threat to people's health, unemployment high, racial and political unrest still ever present on the streets of American cities, and an overall toxic political situation with the two major parties (aided by a polarized media) at each other's' throats and an upcoming Presidential election sure to be fraught with emotion. Should President Trump lose the election, policy swings at the federal level will clearly have an effect on economic conditions, perhaps dramatically. Should he win, some believe unrest will only continue. It is not surprising, given all this uncertainty, that many are perplexed how the stock market could be near or at all-time highs. It is also not enough to simply say markets anticipate or discount the future.

A deeper meaning may be that financial markets are the ultimate "stay in your lane" type of mechanism. Things like political unrest and even a global pandemic matter only to the extent they impact business -- meaning revenue, expenses, interest rates and inflation. As markets got comfortable with the presence of the virus in the world, prices stabilized and began rising after a rapid fall from late February to March. Of course part of the stabilization came about because of unprecedented fiscal and monetary support by the Federal Reserve and the US government.

But something else was going on. It is likely that investors began to see a bifurcated economy where not only were tech-centric and online businesses likely to thrive as existing trends were amplified but also that small businesses, which are not for the most part reflected in the stock market universe, saw their businesses crippled to the benefit of much larger, publicly traded companies, whether it be Walmart (WMT) or Target (TGT) in retailing, Chipotle (CMG) in restaurants, or Nike (NKE) and Adidas (ADDYY) in apparel. This destruction of small business is clearly not good for the country at large, with adverse results for income inequality and social cohesion, but for now investors in those big and growing businesses are looking past these very difficult issues.

Which brings us back to what to do as investors in the anxious summer of 2020? First, as always, stay disciplined. Do not let a sensationalist and politicized media allow you to get too pessimistic about the long-term prospects of business or the country. We simply do not know what is going to happen in the immediate future but we can still, aided by a quantitative look at real numbers, make judgments about which investments and businesses are worth placing our capital in for the mid to long term. Second, stay diversified. Tech stocks are obviously a huge beneficiary of the "new normal" just as they were of an increasingly online, in-the-cloud world. But other non-tech businesses will still have their place in our lives and in our portfolios. Whether select retail like Ulta Beauty (ULTA) or Lululemon (LULU), industrial stocks like Honeywell (HON), and many healthcare stocks serving an aging population, non-tech is still a huge part of our world even if it doesn't capture our imagination like tech.

Finally, stay engaged, both locally and with the world around you. What is new and hopeful in business? What new products or services are poised to help people live better lives, however you define "better." Most of all, stay engaged with your own financial needs and goals so as not to be blindsided by events. Be prepared for the unexpected to the extent you can. This all requires close attention and constant learning, and, at the very least, engaging with an advisor who has his or her ear to the ground but also listens to your own unique story. If you or someone you know is, as we all are, struggling to come to terms with this unique and challenging period, and needs someone to listen and help plan a stable financial future, Arrival Capital Management is prepared to help. Stay well and stay safe.

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