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The Dog Days of Summer (2020).

6/28/2020

A recession - not unfamiliar, but different. We are currently in a recession. A great time to be an investor is the time after the recession. So, when does the recession end? And how do we know it is over? How does all of this affect the market. I will attempt to be brief.

The second quarter looks to be one of the worst in history. A recession is a “period of economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.” Clearly, we are in a recession…what’s next?

My opinion during the panic sell-off back in March, was hold your positions. I advised the market would have a relief rally once it stopped going down - The market stopped going down and we have had a relief rally. A massive, historic relief rally! There is still a bit more work to be done for the market, and the economy.

The next few weeks are going to be critical. Here is why - the economy; the next 4-5 weeks we will be getting earnings reports from most US companies and they will be ugly for the most part. The market anticipates that information though and there will be a point where the market begins to absorb the bad news, and begin to look to the recovery. It will probably occur 2-3 weeks into reporting season. The “news cycle” will begin to change. The reports will begin to look less ominous. This cycle, to a lesser extent happens in most quarters. The difference is where we are inside the cycle.

The 2nd quarter was one of the worst in history. The shelter in place order was lifted during the same quarter. The data was just simply bad. I believe the 3rd quarter will be better. If that occurs, that sequential rebound will be enough to have a quarter that is better than Q2. That improvement, in my opinion will begin the recovery, even if there are some missteps. I believe the worst is behind us. I think the 4th quarter will be strong. I doubt that it will be as strong as last year’s 4Q. Recall, 4Q19 was solid, and even accelerating.

I have no idea how the pandemic will play out. I know that the medical community is making progress. Testing is better. The cases, though bouncing up recently, never went parabolic as was feared. We are closer to a vaccine. Death counts continue to decline as an overall percentage of the cases. That is of little comfort to those who have lost people dear to them. Our prayers are with their families in their mourning. We pray others do not get sick.

The 1Q21 should look pretty good compared to first quarter 2020, as the virus began to approach our shores. We will then have momentum behind us.

So, tactically I am waiting for selloffs to add to our equity exposure. I believe we will trade to new highs in the market late this year or early next year. I like to add when our risk return is greater than 3 to 1. I think the risk of the downside here is limited due to the massive worldwide stimulus. New all-time highs on a closing basis will signal a new bull market move. I think we are nearing a tipping point. It may come during the “Dog Days of Summer” and surprise most.

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Enjoy the day…r2