Investment Letter

The End of the Beginning?

By Patrick Pascal

April 17, 2020

Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning

Winston Churchill, 1942

While many challenges remain concerning COVID-19, the actions of the past few days should be seen in the above context.  The whole nation is now entirely focused on overcoming and enduring this pandemic and with the resolve that has recently emerged, resolution is in sight.

The many obstacles ahead certainly include unprecedented medical needs, particularly ramping up our nation’s ability to educate, test and treat an unprepared populace.  These challenges will also include providing basic services and additional support to ensure the wellbeing of all to preserve civic order.

Just as important, monetary and fiscal tools will need robust deployment to ensure that, what will likely be a sudden economic contraction, does not become a full recession.   The Central Bank and Treasury actions of the last few days have allowed Wall Street to at least conceive of how this all might play out.  The importance of this cannot be underestimated.

For investors, it is important to remember that Wall Street always values shares by looking into the future. Markets typically look out about nine months ahead on average. In bull markets, investors will look ahead ten—and more—years.  In bear markets they can barely look ten days ahead.  

The old axiom that markets like good news, can handle bad news, but abhor not knowing applies here.  Once the market gets a handle on the potential arc of this pandemic, it will be able to more accurately predict probabilities and value shares more confidently—lowering volatility and likely reducing the risk discount many shares now carry.   

Successfully slowing the spread of the pandemic (through robust testing, quarantines and social isolation) would suggest that herd-immunity might take longer—perhaps fourteen to sixteen weeks.  But this also suggests that markets will begin pricing a recovery and return to more normal economic conditions sooner rather than later.

With the understanding that bumps and setbacks may well continue, equity investors should look to add blue-chip shares presently offered at compelling long-term values.

The opinions expressed are for general informational purposes only and are not intended to provide specific recommendations or advice on any specific security or investment product. It is only intended to provide education about investment issues.