The presidential election is now 98 days away. Many hope a favorable election outcome will suddenly settle the massive civil unrest of looting, personal harm, and property damage (sorry, I meant the peaceful protests). Following shortly after, that will be the implementation of effective health policies that both contain viral risks within reasonable standards and allow society to return to normal. Currently, the acute at all cost attention by main media and politicians to the risks of Covid-19 has resulted in the negligence of managing other risks that include domestic violence, civil unrest, child abuse, financial ruin, depression, suicide, economic collapse, dysfunctional education system, and terrorism. Releasing prisoners, implementing “no bail” policies, and attempts to defund police exacerbates the risks to law-abiding citizens to enjoy the freedoms of our country for those that still have jobs and can afford to engage in some leisure activities. I am sad about the canceling of this year’s AirVenture in Wisconsin, the largest annual aviation event in the world. The July 2 Bureau of Labor Statistics report indicated the unemployment rate is 11.1% (down from the previous 14%).
I can’t believe I am writing this narrative. Just four months ago, on a valentines date with my wife, I discussed (great date night topic) that our economy by all metrics was firing on all cylinders with the most employed population in the history of this country both in numbers and percentages. The unemployment rate plummeted to 3.5% in 2019, and Jobs Opportunity and Turn Over index (JOLT) indicated for the first time, over 1.6 million more jobs than applicants. The FBI 2019 Preliminary Semiannual Uniform Crime Report reported that ALL CATEGORIES of violent crime offenses decreased between the first half of 2018 and the first half of 2019 (we walked home without any concerns). This compares to changes from 2016 to 2015 in which violent crime increased 5.3% with only slight declines in property crime, larceny-theft, and arson. Below is Table 3 from this report:
It does not take much imagination to project the dramatic increase in all areas of crime in this year’s report.
It seems inconceivable that a super-power nation in the prime of productivity with its consumers reporting decade high positive confidence and sentiment levels could unravel in less than 150 days to such levels of dysfunction, discontent, anger, and violence. One would have to ask where all the content and satisfied people are or were previous reports grossly in error? Were you content and satisfied with your life and vocation in January? One would have to question the accuracy of past reports of job growth and consumer confidence, or were those who were formerly content suddenly turned discontent and hit the streets protesting? How did reports on social and economic status not identify this portion of our population that is so discontent and angry they want to destroy their own neighborhoods and possibly this country as we know it? I don’t have answers and remain perplexed.
Even more bazaar is the stock market. With all the society unrest and new threats by politicians to shut down the country, institutional investors remain optimistic about economic and corporate growth. The major averages of late are starting to flatten and slow the robust recovery rally that started on March 23. The technology sector represented by NASDAQ closed today with a YTD return of 15.93% (stellar performance for any year, let alone half a year during a worldwide pandemic). The S&P 400 (mid-sized companies) and S&P 600 (small-sized companies) indices are deep in negative returns for the year that didn’t rebound like the S&P 500 or NASDAQ. Institutional investors are not as positive on the prospects of small and mid-sized companies.
What Does This Mean to Me?
Whatever happens, it will happen in 98 days. Certainly, all the civil unrest (sorry, peaceful protests) are raising concerns about risks in stocks and the obvious disconnect between fundamentals and technical indicators. We remain focused on evidence of portfolio changes by institutional investors that may begin reducing risk and reducing their stock allocations. Until then, we are holding our allocations in our model portfolios. We removed all municipal bond holdings in our model portfolios due to concerns about declining municipal tax revenue and rising debt. The technical indicators also supported our fundamental concerns as the municipal ETF (orange line) for this sector didn’t recover as quickly as investment grade corporate bonds (purple line).
Give us a call if you have any questions about your account or financial plan. We welcome your call and the opportunity to help.
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