LGT's Profit Sense

As we roll through the 5^th week of Dallas County’s shelter-in-place order, the coronavirus (COVID-19) continues to wreak havoc across the nation. It is apparent in these past few days that not everyone agrees with the restrictive action taken to prevent the spread of the virus, and the number of infected individuals has persisted.

The broad market has shown pre-pandemic volatility throughout the week, reflecting an economy buoyed by businesses that are becoming more reliant of fiscal, monetary, and CDC policy changes.

This week has turned up the pressure on re-opening the nation so that Americans can go back to work, ultimately shifting the economic machine back in gear.

Yet leaders in the World Health Organization warned this week that the worst of the COVID-19 pandemic is still looming in the future, furthering the debate of when it is safe to get people back to work.

Various analysts are predicting a combination of scenarios that have never been seen for our economy, so there is no clear historic data that can accurately compare with the current market environment. But past patterns cannot be completely ignored, rather everything at this point must be strategically assessed in order to continue finding portfolio growth in the market.

Monday was a shock to the markets that seemed long overdue when WTI crude oil contracts for May plummeted over 200%, or -$26, as the storage war heated up. The S&P 500 index took heed to the drastic crude downfall by finishing the day down -1.79%.

Tuesday was much of the same, with the S&P 500 falling from 2,773 to 2,736, but oil turned positive and has not looked back since, closing out Thursday at $16.87.

The broad market seems to be shifting attention from the sought-after “V” shaped recovery to a more realistic approach.

Again, the jobless claims report on Thursday uncovered 4.4 new jobless Americans, bringing the total since the onset of the coronavirus to over 26 million. But the equity market went somewhat unchanged throughout the day, breaking trend from the previous weeks that usually saw equities gain momentum.

Most companies that reported earnings this week came in over estimates, and the government is in the process of signing yet another $500 billion stimulus deal. But how long the fixed income stabilization, central bank and government parachute, and short-sighted equity markets keep this economy above water is still unknown.

The Fed balance sheet expanded to $6.6 trillion this week. US travel has been decimated. Consumer spending is fractions of its former self. 26 million Americans are unemployed. Over 47,000 Americans have died from COVID-19. The timeline for a vaccine is continuously being pushed back. All of these factors play into the “it will get worse before it gets better” scene, but it also replaces the mindset from a quick “V” recovery to a potentially more intricate path to post-coronavirus life.

The one question that keeps being constructed in response to the country reopening is “even if (insert any business name here) reopens, when/if/how will you act?” The stigma that has been created by social distancing and constant sanitation could have a long-lasting effect on our approach to entering social settings without CDC guidelines.

Restaurants and “non-essential” businesses might be able to open their doors within the next month, but consumer demand determines if profitability follows suit. Without further central bank stimulus, it is daunting to imagine some companies reopening with expectations of business flow similar to pre-coronavirus era.

Only time will tell the unfolding economic story, and at this rate, hopefully history repeats itself.

For anything additional, please contact any one of our financial advisors or visit our website. Stay informed about future developments by frequently visiting our COVID-19 Financial Updates page.