July 2020 – Optimism isn’t easy

On April 29th 2020, asteroid 52768 1998 OR2 passed by earth at a relatively safe distance of roughly 4 million miles or about 16 times the Earth to Moon distance. This was the biggest asteroid to fly by Earth this year and according to NASA it was roughly 2 miles wide. To add perspective, the asteroid that impacted the earth 65 million years ago and is widely credited by scientists for causing the extinction of ¾ of the planet’s species at the time -including the dinosaurs was 6 miles wide.

The center for Near Earth Objects is currently tracking a list of 22 know asteroids that are classified as “potentially hazardous” but luckily none are on a collision course with Earth. Hypothetically, if asteroid 52768 1998 OR2 did impact the earth it is large enough to cause global catastrophe, if not extinction.

Great, but what does this have to do with the asset allocation of my portfolio you may ask? Not much, but it does highlight a very real risk that is out there and one that we have absolutely no control over. Do we lose sleep over the possibility of this scenario coming to fruition? Of course not, because we choose to focus on risks that we can control and mitigate.

To me, asteroid 52768 1998 OR2 is a metaphor for 2020 -where many of the exogenous events that have been weighing on financial market stem from unforeseen sources rather than the typical missteps in fiscal or monetary policy or war. Covid-19 being the main culprit and while we cannot fully control the impact that Covid-19 has had on our daily lives or the financial markets, we can and will continue to take advantage of price distortion opportunities across both the equities and fixed income markets to benefit Client portfolios.

We have seen market sentiment shift from despair in March, to pessimism on the recovery and now to optimism over a vaccine being made available quicker than most scientists and doctors envisioned. Based upon the research I have reviewed, a vaccine should be completed by the end of the 1st quarter of 2021, with a small possibility of availability in the final month of 2020. In addition, we expect another coronavirus stimulus bill to be passed in the next three months effectively bridging the income gap as much as possible for the millions of unemployed Americans and small business owners with discussions of a 4th stimulus bill already on the table if deemed necessary.

As we evaluate the pipeline of future market volatility risks, the upcoming Presidential election is the most glaring but given the 5-month window until the election making any significant tactical changes to portfolios would be deemed premature at the moment.

Next Tuesday (June 14th) is the start of the 2nd quarter earnings season and we are fully expecting it to be a disaster. Since 2nd quarter covers the months of March, April and May (the height of the virus lockdowns) the market is largely looking past these reports and if anything more emphasis will be placed upon a companies forward earnings guidance -if they choose to give one. As I mentioned in previous notes, markets are forward looking, and the 2nd quarter of 2020 has been distorted so much by the economic lockdown these reports are of little value.

As I wrap up this Month’s note, it was nice to see the S&P 500 Index close out the week higher by 32.99 points or 1.05% today, which meant we had another positive week on the index overall. We believe the worst of this virus is behind us and being optimistic in the face of adversity is not easy but anything worthwhile in life never is.

In the meantime, stay safe, wash those hands and please reach out to us with any questions or comments you may have regarding your specific situation.

As always, please have a great Friday evening and enjoyable weekend.

Jaran Day Chief Investment Officer
Griffin Dalrymple, CFP®, Chief Strategy Officer