As we tried these past few months to put a very unusual – and very stressful – market and economic environment in perspective, we leaned on a few bits of timeless Wall Street wisdom, including “Don’t Fight The Fed” and “Don’t Try To Time The Market,” which are ways of reminding ourselves monetary policy is an exceptionally powerful tool for spurring or slowing the economy, and drawdowns and volatility are part and parcel of investing.
In this Weekly Wire, we pivot to a third popular, and often discussed as of late, nugget of investing wisdom - “The Market Climbs A Wall Of Worry,” which is a way of reminding ourselves the market can, and does, move higher in the face of challenging news (remember, the market is forward-looking) and, somewhat ironically, we should more often be concerned about the outlook for risk assets when all the news is positive and everyone is bullish (the late 90s and the subsequent bursting of the tech stock bubble come to mind). Today's bricks of bad news construct the wall of worry that Wall Street continues to climb, including a spike in new COVID-19 cases, an inconsistent reopening of the US economy, souring US/China relations, and the uncertainty surrounding the 2020 election. Those are some bricks and that is some wall!
There is much offsetting good news: the recovery continues; monetary and fiscal policy remain extremely supportive of economic growth and risk assets; and Q2 earnings season – so far – is off to a solid start. While we expect more of a rangebound market near term, we are optimistic equities will continue to climb a wall of worry into 2021. In the meantime, if you want to look at another daunting wall, you can check out Free Solo, the documentary chronicling the first (and only) free solo ascent of Yosemite’s famed El Capitan by Alex Honnold. It’s an incredible – and incredibly inspiring - athletic achievement.
Tagged: weekly wire, market perspectives, Tim Holland, risk assets, COVID-19, earnings season