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Fog Still Obscures The Road Ahead

From Lee Sherbakoff,
The Nalls Sherbakoff Group, LLC.

Dear Friends,

Aided by massive stimulus and liquidity injections from the Fed, the S&P 500 Index has turned positive for the year. Cautiously upbeat headlines regarding a vaccine have also supported sentiment. Yet, tensions between the U.S. and China are rising, coronavirus infections and coronavirus-related deaths continue to rise, and the coronavirus-inspired fog of uncertainty and fear has yet to lift.

Given projections that earnings will begin to recover next year, investors appear to be looking beyond 2020. In the short-term, the strength of the economic rebound in May and June has been more than almost anyone could have anticipated. Further, longer-term Treasury yields well below 1% are supportive of higher values in stocks.

Two months doesn’t make an economic recovery. As mentioned above, the spike in Covid-19 cases and the path of the disease, doubts about the size and make up of any new stimulus package from Congress, and the increase in new jobless claims this week at 1.4 million, continue to create stress and fear in investors, at least in the near term. So, let’s not discount the possibility we could see renewed volatility.

Can consumer spending continue at pre-pandemic levels with an unemployment rate above 10%? A continuation of generous jobless benefits and new stimulus would lend support, but medium and longer term, a sustained recovery in jobs is needed. Generous jobless benefits are a double-edged sword. The cash supports spending but can discourage furloughed workers from returning to work. Backtracking or delays in reopening in some states, still-high unemployment, and renewed worries about the spike in Covid-19 cases are headwinds to further gains.

There are still many questions that, quite frankly, don’t have an answer.

  • How quickly can Covid-19 be brought under control?
  • Are the current spikes temporary? How quickly might they play out?
  • Will we experience a second wave this coming fall and winter?
  • How long will it take for confidence to return and normal spending to resume?
  • How might businesses that require person-to-person interactions fare over the medium and longer term?
  • When will an effective treatment and an effective and readily available vaccine be developed? Will either be developed?

Forecasting and predicting are difficult even in “normal” times and some would say they are even impossible to do with any certainty at any time. The questions above don’t have readily available answers; therefore, modeling outcomes are filled with guess work.

So what are investors to do? We believe they should lean into and have faith, confidence, and optimism in our general principles outlined in our recent Monthly Insight.

  • Successful investing is essentially goal-focused and planning-driven. Long-term, goal-focused equity investors, are acting on their plan with patience and discipline.
  • Long-term investing success is a direct function of how the investor reacts—or, more properly, how he/she refuses to react.
  • The equity market can’t be consistently forecast, much less timed, and that the only certain way of capturing equities’ superior long-term returns is to sit through their occasionally steep but historically temporary declines.

Stay safe.

The Nalls Sherbakoff Group, LLC

DISCLOSURES: The information provided in this letter is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment, legal, or tax advice. The Nalls Sherbakoff Group, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of, or reliance on the information. These indexes reflect investments for a limited period of time and do not reflect performance in different economic or market cycles and are not intended to reflect the actual outcomes of any client of The Nalls Sherbakoff Group, LLC. Past performance does not guarantee future results.