Registering off the Charts
As we all expected, the overload of negative headlines is registering off the charts. I’m going to keep all of my thoughts to business and investments. I completely understand that families are suffering from job losses or family members are sick or loved ones are dying. Nurses and doctors are saving lives. To be honest, it’s hard to write about investments, but that’s how I relieve my stress and it’s in my DNA.
The Federal Reserve and Congress is helping to build a bridge and supporting the economy until we all escape our houses and return to work. The scientists have done an extraordinary job creating antibody tests, developing therapeutics, and fast tracking a vaccine. Testing kits are ramping up, but the magic bullet won’t be until there is vaccine and then life will return to the new normal. The most positive news in all this mess is that the large U.S. banks are much better capitalized and they should be able to ride out this storm. The stock market volatility will continue because there is so much uncertainty. There are signs that investors have mostly written off 2020 and are becoming more focused on 2021 earnings. It will be interesting to see how stock prices react when companies begin to report earnings. The longer we all remain locked down, the longer the recovery will take. We are at war with an invisible enemy and going forward the most important question will be when the stay at home order ends. I expect this debate to heat up later this month.
I’m not going to predict what the stock market will do next week or next month. I have no idea and I don’t think any economist alive can predict what will come next. I don’t think anyone foresaw that the impact on small businesses would be so severe. Small business have been by far hit the hardest. I know firsthand from speaking with many of you who work at these very businesses.
When the time is right, the best opportunities will be investing in the very small businesses that are getting hit the hardest. I’m beginning to take a closer look at small cap companies. This will be a departure from my focus on large cap investments over the last 3 years. The highest quality blue chip companies have had the highest returns over the last 3 years. I believe that Vanguard Small Cap ETF will outperform most Large Cap ETF’s off the bottom. The hardest hit small cap companies that have the lowest debt will likely offer the greatest investment opportunity. I am being very patient and waiting until I see the bottom before investing in this area. I expect the negative news will continue to register off the charts. My hope is the future returns for the small cap American businesses will eventually have their turn to register off the charts when our economy gets back on its feet.
Stay Healthy!
