Uncertainty is always present when investing. Current times are no different regarding how the COVID-19 virus may unfold as global economies slowly reopen. In Benjamin Graham’s legendary book “The Intelligent Investor”, he uses a metaphorical Mr. Market to explain how stocks can become mispriced from time to time. On a daily basis, Mr. Market tells you what he thinks a business is worth and offers you the daily opportunity to either buy or sell additional business ownership at that day’s price. At times, Mr. Market’s price seems reasonable and at other times he lets his enthusiasm or fear, depending on the current environment, get the better of him. As a result, his offered transaction price sometimes seems unreasonable. This simple example of Mr. Market is what plays out daily in capital markets around the world. In this note, we explore the bullish (optimistic) viewpoints and the bearish (pessimistic) viewpoints as related to COVID-19, the economy, and capital markets, illustrating that investor uncertainty and the Mr. Market example are as current as ever.
COVID – 19

In the United States, COVID-19 has currently infected over 1.5 million Americans , resulting in over 93,000 deaths. Reviewing recent cases per day from John Hopkins data , the figures suggest that cases per day have retreated from peak levels. Societies globally remain vigilant, while at the same time, are evaluating how to start the transition from lockdown to reopening.
Bullish View

·        Cases globally are declining, and societies are beginning to reopen. The worst of the economic impact has already occurred.
·        Over 100 potential vaccines are under development. Each day we get closer to finding a long-term cure.
·        Pent-up consumer demand will come roaring back as restrictions are relaxed, driving better-than expected results.
Bearish View

·        Reopening too quickly without widespread testing and contact tracing measures could trigger outbreaks that governments may not be able to contain.
·        The potential for new hot spots to develop, leading to further suffering and deaths, will set back any economic progress made from lifting restrictions.
·        There are no guarantees that more than 100 vaccines under development will be effective. 
Regarding COVID-19, are you a bull or a bear?

Near-term global economic activity has been severely hammered by global social distancing measures and other virus precautions to flatten the outbreak curve. U.S. real GDP fell 4.8% (on an annualized basis) in the first quarter of 2020, and the International Monetary Fund (IMF) forecasts (-3%) global real GDP growth for 2020. The impact of social distancing on employment has been devastating with a mind-blowing weekly average of over 4.3 million Americans initially filing for unemployment benefits over the past 7 weeks. The U.S. April jobs report noting nonfarm payroll fell by 20.5 million jobs, with the unemployment rate increasing 10.3% to 14.7% ,representing the highest rate and largest month-over-month increase in the history of the economic series.  
Bullish View

·        While the global economy is likely to contract in 2020, the IMF is also forecasting global and U.S real GDP growth in 2021 of 5.8% and 4.7% , respectively, as economies reopen and recover.
·        A review of the eye-catching April jobs report notes that 37% of the 20.5 million jobs lost were from the leisure & hospitality sectors. Furthermore, of the 20.5 million job losses, 18 million of those jobs reported being on a temporary layoff as of April. As the economy rebounds, it is reasonable to assume that leisure and hospitality rebounds and furloughed employees return to work quickly.
·        Don’t fight the Fed. As Mohamed El-Erian, Chief Economic Advisor with Allianz recently noted, markets have stumbled into a win-win situation. If reopening goes well, we win from increased economic activity, and if it doesn’t go well, the Federal Reserve and Congress are likely to step in with stimulus and other responses like we saw in March. 
Bearish View

·        Economists are forecasting 2 nd quarter U.S. real GDP to decline by 30% to 40%. Even coupled with a potentially robust 2 nd half of 2020 rebound, full-year 2020 U.S. real GDP is estimated to contract by 4-6% (annualized). Having never experienced an economic shutdown of this magnitude, it may take longer than expected for economies to recover. 
·        Despite companies likely already cutting over 30 million jobs , consumer demand and spending may not come back as quickly as expected given current virus fears. Furloughed employees may turn into permanently laid off employees.
·        The Federal Reserve and Congress have aggressively stepped in to reassure markets in the midst of the March sell-off, spending over $2.4 trillion on relief. While the stimulus has bought time, this is a healthcare crisis that is not easily solved.
Regarding the economy, are you a bull or a bear?
Capital Markets

As investors, we ultimately care about long-term investment performance and our ability to utilize capital markets for long-term wealth creation and preservation. Benjamin Graham’s Mr. Market metaphor still resonates in modern times. The S&P 500 was down 34% from February 19 th to March 23 rd as the Coronavirus and economic lockdowns began globally. Since touching market lows on March 23 rd , the S&P 500 is up 33% through May 20 th
Bullish View

·        Warren Buffett, at the Berkshire Hathaway annual meeting on May 2 nd , noted the extraordinarily wide range of potential outcomes in the near-term; but in his opinion, America has historically shown the ability to overcome daunting challenges. He remains convinced nothing can stop the American economy from continuing to thrive in the future.
·        The current top 5 holdings of the S&P 500 (in order: Microsoft, Apple, Amazon, Facebook, and Google) account for roughly 20% of the S&P 500 index. Additionally, each incorporates technology in some manner and have thus far been less impacted from the outbreak and appear well positioned for future growth. More broadly, the Nasdaq 100 Index (a basket of the 100 largest companies traded on the NASDAQ exchange; predominantly technology, communications, and consumer-focused) is up over 3% year-to-date. These technology and well-positioned companies will continue to thrive and drive markets higher.
·        While U.S. large cap stocks are still down a little over 7% year-to-date, they've recovered better from March lows compared to U.S. small cap and international equities, which were off more than 18% and 16%, respectively. In addition to technology, biotechnology, healthcare, and pharmaceuticals are also positive or modestly down for the year. This is an illustration of the market rewarding well-capitalized companies that can likely withstand the impact of the virus, as well as businesses in a position to more quickly profit from emerging trends and opportunities. 
Bearish View

·        As Fed Chairman Jerome Powell recently commented, we are in the midst of an economic hit “without modern precedent,” and unless Congress and the White House act to provide financial support, we could see a wave of bankruptcies, further job losses, and, ultimately, permanent damage to the economy. Additionally, without a vaccine or another cure, in combination with more widespread testing, business activity and employment are likely to struggle along with the lingering possibility of a 2 nd wave of infections.
·        The S&P 500 is currently valued at 21.2 times forward earnings; its highest valuation since 1999 and the tech bubble. According to Factset, 1 st quarter S&P 500 earnings are on track to fall 13.6%; their worst quarter in nearly 11 years. Further, based on current estimates, analysts project S&P 500 earnings will decline 41% in the 2 nd quarter, 23% in the 3 rd quarter, and 11% in the 4 th quarter of 2020. Current valuation levels and expected earnings contraction likely led billionaire hedge fund investor, David Tepper, to recently state that he views the market as the most overvalued he’s seen since 1999.   
·        Beyond virus concerns , there are fears that U.S. - China bilateral relations could deteriorate with the U.S. now having more virus cases than any other country in the world. Trade tension and political rhetoric could trigger additional economic uncertainty. As investors will recall, prior to the virus outbreak, trade tensions had been an on-going market concern over the last 2 years (recall market sell-off during the 4 th quarter of 2018 as an example). 
Regarding capital markets, are you a bull or a bear?
We have heard several prominent doctors, economists, and investors expressing their bullish or bearish outlooks, some of which we have shared above. There are still more questions than answers, and still more uncertainty ahead. With respect to the equity market, and as uncomfortable or exciting as it can be on any given day, this is how markets are meant to operate. Investors, on a daily basis, come together and express their outlooks by buying, selling, or doing nothing.

Capital markets could proceed down various paths from here. Given the current level of economic and capital market uncertainty, how should an investor proceed to increase future probability of success? When thinking through investment portfolio construction, as we have written about before, investors need a defined, long-term financial plan . Alongside their financial plan, establishment of a long-term asset allocation target is paramount. Your financial plan documents your long-term aspirations, and a long-term asset allocation target encourages a more disciplined, institutional investment approach. Long-term planning and investment allocation targets should substantially reduce your risk of falling prey to Mr. Market’s occasional, emotionally-motivated price offering. 
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.

Schneider Downs Wealth Management Advisors, LP
1 PPG Place, Suite 1700
Pittsburgh, PA 15222