Welcome Summer 2020 - Warning!: Covid Is Not On Vacation

Welcome Summer 2020 – Warning:  Covid is not on Vacation

For most people this has been the most miserable first half to a year they have seen in their lifetime with the pandemic, recession, social protests, and stock market volatility. It is anyone’s guess as to how the last half of 2020 will play out, especially when you add in a presidential election in November.

For the first time since the late 1950’s stock dividends are more than 1.5% higher than the yield on the 10-year treasury.  This helps stocks look attractive relative to bonds.  International stocks, especially Asian and European, are appealing based on lower valuations and their countries seem to be dealing with the virus better than the U.S. and Latin America. Unfortunately, the U.S. response has lacked the discipline of other countries, especially Asia, where community is viewed as more important than the rights of individuals.  Quarantine fatigue is setting in and many people are not practicing social distancing.  The fear is America will see a dramatic spike in both Covid-19 cases and death which will either lead back to Sheltering in Place, which we don’t think is politically viable anymore (unless the healthcare system is overwhelmed) or deaths will increase dramatically.

10 states are recording a seven-day high of new cases, with Florida leading the pack and looking at possibly becoming the new epicenter. What’s more, 23 states have upward trends in new cases, 8 states are reporting steady numbers of new cases, and 18 states (including Minnesota) are trending downward. As testing increases, so will the number of new cases, however the number of hospital visits is spiking as well.

As far as the potential shape of the recovery – V, U, L, W, etc. – Dr. David Kelly, Chief Global Strategist for J.P. Morgan, believes our recovery will be a plunge, then a bounce (where we are now) and then a crawl sideways with more volatility until a vaccine is created, which will spur a surge in economic activity.  The vaccine is so important, both the timing and distribution.  Most experts believe a vaccine will not be available until this time next year which means the economy will limp along for another year – creating winners (those who can operate well in this environment) and losers like travel, leisure, sports, and fine dining.  Other companies, like manufacturing, are working hard to adapt and will get better at managing social distancing restrictions.

Further, Dr. Kelly believes we are due for a correction at some point as investors start to worry about when a vaccine will be created, a potential second wave of infections (we are still in the first wave!) and an economic rebound that is slow to materialize and may disappoint investors.  This is why it is so important to stay balanced and diversified.

2020 has already thrown a lot at the global economy, as we look to summer, we want everyone to remember that Covid is not on vacation. Stay safe and be well.

The Bond&Devick Team