It's always darkest before the dawn

It is one thing to understand we are living through an unprecedented, pandemic driven economic downturn, and all together another to learn the US unemployment rate is 14.7% and that 20.5 million of our fellow Americans lost their jobs in April. The numbers are shocking, and our hearts go out to anyone who has been impacted by COVID-19. Though we recognize and appreciate this is first and foremost a healthcare crisis, as investors we must consider what to make of the economy (in light of the unemployment rate and jobs report), as well as the stock market (which is up about 35% from its March 23 low, as measured by the S&P 500 Index).We think a few points are worth noting.

First, the US economy is clearly in a recession (even if we won’t confirm that point until we receive Q2 GP data in late July); second, the jobs report and unemployment rate are both backward looking, showing us where the economy was, not where it is; and third, the US economy likely hit bottom in April and has begun to turn higher. On the third point, consider the US economy was shut in April but is slowly reopening in May, so the data must get better, even if it will take some time to recoup the economic wealth that was destroyed in April. What is most important is the trajectory of the economy and we think that is moving higher. Concerning the stock market, we have made the point before that the market is a forward-looking indicator and will trade ahead of the economic data (good or bad). We also think the market is reflecting the herculean—and so far, successful—effort by the Federal Reserve and the Federal Government to mitigate the impact of the pandemic. Finally, there is a point we think is worth making about the title of this week’s Weekly Wire, the phrase “It’s always darkest before the dawn,” was coined by English theologian Thomas Fuller in 1650, and at the time, the life expectancy in the UK was about 30 years; today it is about 80 years. Things don’t always move in a straight line, but history shows that overtime the world becomes wealthier, healthier, and more peaceful.

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Tagged: Market perspectives, weekly wire, Tim Holland, unemployment rate, COVID-19, life expectancy