Capital markets were well-behaved over the summer, and stock prices even touched on fresh historic highs. Those results appear to be at odds with worrisome headlines and the numerous aspects of our society that seem to be experiencing unprecedented challenges. Perhaps, Wall Street is looking past this awkward year to a time when conditions stabilize and regain a more productive direction. We believe the worst of this economic pause is behind us. Companies have shown remarkable resilience, employment is beginning to recover, and monetary stimulus by the Federal Reserve has never been greater. However, life outside the capital markets has turned tumultuous and frightening. Adding to the pandemic, civil strife has escalated, and an epic number of natural disasters have wreaked havoc in recent weeks. Now, with an emotionally-charged Presidential election looming, we expect investors may need to have patience with a world that feels, at times, like it is coming unhinged.
There are protests in the streets, the west coast is on fire, the gulf is beset with hurricanes, and a pandemic continues to stifle the normal social and business activities that are the basis for our pursuit of prosperity and happiness in our lives. City leaders are withdrawing support for police departments, while instances of looting, vandalism and violence continue to impact communities across the nation. Helpless citizens are left to fend for themselves. Schools remain closed, impairing the education opportunities for children without the means to afford the technology required for online learning programs. Local governments have forced businesses to close or operate at reduced capacity, while Congress bickers over how to support millions of workers rendered unemployed by the economic shut-down. The U.S. Department of Justice has identified New York City, Portland and Seattle as “Anarchist Jurisdictions,” areas in which the city governments permit violence and destruction of property.
When confronted by a number of system failures all at once on the ill-fated Apollo 13 space mission, NASA Flight Director Gene Kranz implored, “What have we got on the spacecraft that’s good?” Right now, our economy is sputtering, but there are components that remain functional. Unemployment peaked in April at 14.7 percent, and it has steadily come back down over the summer. The August figure improved to 8.4 percent, as some people were able to get back to work with a partial reopening of some businesses. Many companies have been able to successfully transition to remote-work programs. Shoppers increasingly buy online and have products delivered to their homes. All of these efforts have allowed our economy to remain modestly productive, although not operating at full capacity, and investors have been fortunate to see the value of their portfolios recover. The Federal Reserve continues to work in the background to keep money available and shore up any areas of the financial markets that require additional liquidity. As a result, our banking system has managed to operate without any serious problems.
Uncertainty and controversy surround the upcoming Presidential election, an event that promises to test the pain threshold of voters. In a nod to California, Joe Biden has chosen Kamala Harris as his running mate to campaign against incumbent Donald Trump and Mike Pence. People who watched the National Conventions for both parties saw contradictory views of the state of our country. The likely economic policies from a Biden victory or a Trump victory are philosophically quite different from one another. Tax proposals, trade policies and regulatory priorities are up in the air with the coming election. The recent passing of Justice Ruth Bader Ginsburg, and the animosity over her replacement highlights the combative nature of today’s political climate. Polling suggests the Biden candidacy has the edge at this time, although it is hard to discount the potential for bias in survey results and media reporting. Rather than make plans based upon political assumptions, it seems better to await the actual election results and proceed as concrete proposals get mapped out early in the coming year.
Given the daunting obstacles of 2020, capital markets have performed better than expected. That is certainly encouraging for investors, but it is far from the whole story. The news is filled with worrisome events that disrupt communities and make people feel insecure, while capital markets are trying to look ahead for opportunities that may exist when we get beyond these challenges. As conditions for the Apollo 13 astronauts grew dire, Flight Director Kranz confronted exasperated engineers questioning whether the mission was doomed. He remained famously optimistic in his statement that “I believe this is going to be our finest hour.” So far, Wall Street has remained optimistic that America will rise to the occasion and produce another one of our finest hours.
As always, everyone here at West Oak Capital sends our best wishes to you and your family. Please contact us if you have any thoughts you would like to discuss.
