InflectionApril 29, 2020 -
Categorized in: IAG News
I sense that we have reached a quadruple inflection point in our country’s pandemic progress, and the next few weeks will be pivotal in determining how the rest of 2020 unfolds.
Inflection Point 1: Flattening the curve. The mantra since COVID-19 first appeared has been to “flatten the curve” to ensure our health care system is not overwhelmed like Italy. This strategy has worked except for a few isolated hotspots.
It appears we are now moving from flattening the curve to bending the curve slightly downward based on additional testing, reduced hospitalizations, and a falling number of deaths attributed to COVID-19. As with any war, accurate and timely data from the battlefront may not prove entirely accurate and will likely be revised by historians, but decisions must be made on the data we have available.
This inflection point could quickly reverse given COVID-19’s history of rapid asymptomatic spread, but we could witness the start of a positive trend over the next two weeks.
Inflection Point 2: Restarting the economy. People are starting to get more restless. Over 30 million people have lost their paychecks. Unemployment compensation and $1,200 checks may last them a short while, but the uncertainty that comes with unemployment creates stress and tension.
The pressure to take steps to return to “normal” continues to build. Governors are individually weighing how they can be pandemically prudent while minimizing the risk of permanent economic carnage and social unrest.
This inflection point is starting to bend toward avoiding economic carnage. The significant question is whether economic recovery can be sustained without reversing Inflection Point 1.
Inflection Point 3: Political divergence. While there have been some flare ups, our political leaders have generally worked together to spend freely in an effort to combat the economic collapse.
However, the easy decisions have been made and it appears we have reached an inflection point in cooperation between political parties going forward.
Unlike the first two inflection points, this one is likely to create negative headlines in the coming months.
Inflection Point 4: Financial markets. After falling and bouncing back quickly, the stock market’s momentum has stalled for the last two weeks as traders evaluate future prospects.
Companies are currently releasing last quarter’s earnings reports and providing a glimpse into what they see for future earnings. The future is very vague with many companies providing no guidance at all. Analysts’ estimates of future earnings over the next 12 months have already fallen by over 19% since late February.
This inflection point could either bend up or down. It is entirely possible that we could retest the stock market lows in late March if the three inflection points above all turn negative. It is equally possible that the stock market could accelerate upward if the three inflection points above all turn strongly positive. The next few weeks will be telling.
If we are truly fortunate, all four of these inflection points will bend in our favor and hopes will rise with the temperatures in the coming weeks. However, we also must expect some disappointments and cool lake breezes.
Quote of the week: Larry Swedroe: “The way I see it, bear markets are like taxes. They’re painful and inevitable, but ultimately they are a necessary evil. Just as taxes redistribute money from the wealthy to those in need, the market has knack for transferring wealth from those without disciplined investing plans to those with them.”
Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through IAG Wealth Partners, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.
Past performance is no guarantee of future performance. In fact, the opposite can be true. The information contained in this report does not purport to be a complete description of the securities, markets, or development referred to in this material. Investing involves risk including loss of principal.
Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. No strategy assures success or protects against loss. Investing involves risk including loss of principal.