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After experiencing the fastest bear market in the last 100 years, during which time the S&P 500 dropped 34%, the market has experienced an equally impressive and significant rebound over the last 10 weeks.
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The stock market has recovered more than 80% of its losses from the February/March pullback.
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We appear to be emerging from the sharpest and shortest recession in U.S. history. Economic activity is improving from the April lows. The economic recovery will likely be reasonably strong, even if it is bumpy and uneven.
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There are both upside and the downside risks currently. While there are green shoots of economic growth, they are from a very low baseline after the economy was essentially shut down. While we like to be optimistic about the future, we also are aware that we still do not have a vaccine or a proven therapeutic, and that we are still in the early stages of reopening the economy.
The joint investment committee of Horizon and Impel Wealth Management met on the afternoon of June 8th, 2020 to review our model portfolios, as well as the investment and economic outlooks put forth by the various strategists we follow. We are pleased to report that over a very challenging time, all of our model portfolios are outperforming their risk adjusted benchmarks over the most recent one, three, and five-year periods of time.
After seeing sharp drops in the values of both U.S. and global stock markets from their February highs to their late March lows, there has been an equally impressive rebound in the markets over the last ten weeks. The markets have looked similar to jumping off a bridge with a bungee cord attached, as the initial drop was quick and steep. However, with significant fiscal and monetary stimulus provided by the Federal Reserve Bank, the Treasury Department, and Congress, the snap back has seen the markets recover more than 80% of the initial downturn.
It does seem that there is currently a disconnect between the level of enthusiasm in the stock market and some of the economic data that is nearly unprecedented in terms of the magnitude of loss. Weekly jobless claims remain one of the best sources of economic data, and the most recent numbers show the total number of jobless claims climbing to 42M since early March. We are watching these numbers against the rehiring that is occurring as the economy begins reopening.
The May jobs report, which came out last Friday, was expected to show a loss of more than 8M more jobs in the United States, and the unemployment rate rising to nearly 20%. To everyone's surprise, we saw the US economy added more than 2M jobs, and the unemployment rate dropped from 14.7% to 13.3%. While we know that there are anomalies in the way certain things are counted during times of disruption, the positive surprise of 10M additional jobs is encouraging.
We do know markets do not go up in straight lines, and we do expect bouts of volatility to continue. We need to prove that the economy can reopen without risking new outbreaks of the COVID-19 coronavirus, and we will ultimately need a proven vaccine or therapeutic. While these are being developed at record speeds and going through testing at the fastest pace in US history, we know that they are still a number of months away. We also know from history that the adoption rate of taking vaccines is generally around 50% at best in the United States.
Geopolitical tensions between the US and China are growing once again. These are being fueled by China's initial lack of candor and honesty towards the viral outbreak and human to human transmission. In light of these issues along with the upcoming presidential and congressional election cycle, we believe the markets could have a somewhat bumpy ride over the summer months.
The investment committee therefore recommends that if you have any cash or short-term liquidity needs, now may be a good time to rebalance portfolios to create that. You make money by buying low and selling high. And, while we are not at new all-time highs, markets have risen more dramatically than anybody would have expected two months ago. We think it makes sense to balance optimism against the current economic backdrop.
As always, we take the responsibility of managing your hard-earned assets very seriously. Should you have any questions regarding these notes, please do not hesitate to reach out to your advisor. Thanks for your trust and have a great day.
