MAY 11 - MAY 15 MIDWEEK UPDATE
May 13, 2020 - In light of the gradual reopening of Texas businesses, HighGround’s senior leadership team is developing a plan for our eventual return to the office. Our executives are attending seminars and researching best practices to ensure we take every precaution possible, as the safety of our team is paramount. Our return will likely be a phased-in approach in June. As we proactively plan, maintaining our Flexible Focus will be key. Our office work environment will look different than before but our level of service and commitment to our clients will remain constant.
- Investor sentiment remains mixed as a growing number of countries and U.S. states are beginning to phase out stay-in-place measures, which could result in an increased infection rate.
- Last week new corporate earnings results and economic data reports revealed more evidence of the devastation caused by the coronavirus pandemic.
- On Friday, the U.S. Department of Labor’s monthly jobs report showed the unemployment rate skyrocketed to 14.7% in April, erasing in one month a decade’s worth of employment gains. In just two months, the U.S. went from February’s 50-year low to April’s all-time high, based on Bureau of Labor Statistics data back to 1948.
- The discouraging unemployment data may serve as a catalyst for further stimulus to help support workers and businesses, which could offer hope that such relief measures will eventually offset the economic damage imposed by the pandemic.
- If it seems like there is a disconnect between Main Street and Wall Street, keep in mind that Wall Street, or the stock market, is always forward-thinking. Recent rallying is a sign that the market sees better times ahead for the U.S. economy.
- The outlook for the oil market remains unclear but voluntary production cuts by OPEC members indicate that oil-producing countries are willing to do what they can to stabilize the market.
After reaching an all-time high on February 19, the U.S. market dropped 35% in 23 trading days, the fastest bull-to-bear market transition in history, bringing the 11-year bull market to a sudden end. However, the recent rebound in the U.S. equity market has reduced the S&P 500 Index’s year-to-date return deficit to -10.5% as of May 12.
Will my endowment still be able to meet its long-term goals during these market conditions?
Yes, because you have time on your side. HighGround designs your portfolio to achieve a certain return, on average, over a perpetual time horizon but that does not preclude the fact that the annual returns can be very unpredictable. However, regardless of market conditions in any given year, your payout remains stable and predictable. We manage your portfolio to allow for a prudent level of spending (payout) each year, while also planning for the economic benefit for future generations.
The S&P 500 was off 19.6% at the close of the first quarter, its worst quarter since 2008. In contrast, HighGround's Capstone Endowment Fund, was down only 10.5% for the first quarter, demonstrating the advantages of strong diversification during short-term market disruptions.
What is the expected recovery time?
It is impossible to predict when the economy will start to recover although we expect it will take on a “U” shape as businesses begin to reopen and, more importantly, consumer behavior returns to a semblance of normalcy. A U-shaped recovery occurs when major indicators of economic performance take on the shape of the letter "U" when charted. A U-shaped recovery is similar to a V-shaped recovery except that the economy spends more time at the bottom of the recession rather than immediately rebounding. Federal Reserve Chair Jerome Powell indicated this week that he expects the recovery to take time to gather momentum and that more fiscal support may be needed despite significant downside risks. We do not expect a full recovery until vaccines and treatments are available for COVID-19, likely in early to mid-2021.
There are unknown days ahead. But even in the darkness of our most difficult valleys, the Shepherd comforts us. His goodness and mercy follow us all our days (Psalm 23).