by Zach Marsh on Jul 24, 2020
Summer is made for the dreamer. Perhaps like no other season, summer has the cunning ability to entrance us—to distract our thoughts, momentarily, away from future worry. The other day I was playing golf. In front of me were two young boys. The day was warm. We were playing a course I played countless times, myself, as a boy. I am neither a strong golfer, nor do I play all the frequently anymore. Yet that course and I have shared many summer memories. It is inextricably intertwined with my childhood. At that moment, watching the two boys tee off--I, in my comfortable golf cart, they, plodding along, walking, carrying their bags--I so desperately wanted to switch places with them. Perhaps I would be able to immediately cast off the worries of my more advanced age: saving for kid’s college, putting food on the table for the family, saving for retirement, work, always work. Age has a way of adding worry. I am not really sure if youth really benefit from fewer worries, or if, when older, we simply remember our youth as being free from worry, since we have long since dispensed with those concerns from many years ago. I suspect the latter. Either way summer is great for dreaming and for momentarily casting aside worry and doubt and fear.
Summer stock markets are much the same. Often, they can drift along, driven by lower volumes in a mindless delirium. Summer markets can cast aside future concerns, almost like we do ourselves, pushing them off for dealing with sometime in the future. I am reminded of summer 2008. Following the collapse of Bear Stearns in early spring of that year, the market seemed to take a time out. The panic and fear of the few months prior subsided, and even though news kept getting worse, the market seemed to shrug. It was as if the market had neither the energy, nor the inclination to get all that concerned. It was only a week after Labor Day of that year, summer in the rearview mirror, that the market woke up to the reality of the crisis. No doubt those people inside Wall Street banks knew about the ticking time bomb that was about to explode, certainly those inside Lehman knew.
Today it feels somewhat the same, if not more magnified. Unlike summer 2008, summer 2020 has witnessed the stock market not just pause, but rather explode higher. If July 2008 felt like an opium den, July 2020 feels like an ecstasy rave. The news, for the most part, continues to be worrisome. Promises of life returning to normal anytime soon appears hopelessly out of reach. We are months away from an election that has potentially enormous consequences for the future direction of our country. This country, which for some time has been teetering on the brink of social upheaval, feels like it is about to be given the final nudge at any moment. The stock market, like our economy, seems to be disproportionately benefiting a few players, while others struggle mightily. The divide between the have’s and have not’s is only a divide in the manner that the Grand Canyon can be called a divide. Certainly, there seem to be worries to consider. Yet, for now, we drift.
We will wait and see what the fall brings. Another fiscal stimulus bill seems certain to be passed shortly. The Federal budget is expanding at an unprecedented pace. The money to pay for all of this will have to come from somewhere and it would only seem right to take it from those who have benefited the most from the increase in the budget. Cutting taxes on public corporations, which have benefited from Federal Reserve monetary expansion seems like letting them have their cake and eating it too. What is fair and good for America may not necessarily be what the market likes—and that is ok. But it is also something that the market may have to wake up to sooner or later. For now, valuations remain at nearly absurd levels. It is difficult to find a stock in the S&P 500 with a price to earnings ratio less than 25, historically an S&P 500 P/E ratio higher than 20 is overvalued, today then index sits at 28. We will see if, come September, the market decides to care and worry.
Thanks for reading,
Zach and Dave
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