Second Half

Hard to believe we’re already halfway through the year. As someone on Twitter recently said, “The good news is that 2020 is half over. The bad news is 2020 is only half over.” There are so many superlatives that are being used to describe the craziness that happened so far this year. In the second quarter alone, the S&P 500 rose 20%. The best quarter in 20 years. This is in stark contrast when we see that 20 million Americans are now unemployed. And the market’s stunning performance, of course, was after the beating it took in March. The worst beating in decades. “It was the best of times, it was the worst of times.” All in six months.

As many of you may recall, the famous quote is from Charles Dickens’ classic Tale of Two Cities about the French Revolution. In celebration of America’s own revolution, Disney Plus recently released “Hamilton”, the Broadway show about Alexander Hamilton. One of America’s founding fathers, I especially took a liking to him since he was our first Treasury Secretary and architect of the modern central banking system. He thought if they could make borrowing easier that would super charge growth for their growing country. My kids took a liking to “Hamilton” for the great music and lyrics more than the story (because we all know how the story ends). We must have watched the musical and listened to the soundtrack countless times in the last couple of weeks. I’m expecting it to be the summer of “Hamilton” around my house. Thanks Disney.

Disney is also making other headlines of their own, trying singlehandedly to bring back the NBA. Players are being sequestered away at Disney World, and after a couple of weeks, they’ll have a modified playoff. Disney has a vested interest in this since their ESPN brand was built around live sports. ESPN has been getting decimated since live sports has been suspended. This is a big risk for Disney. Having an outbreak of COVID on their compound while the world watches on ESPN would be a PR nightmare.

Personally, I’m a huge fan of Disney. We had annual passes to Disneyland when my kids were younger (and when the passes were cheaper). I’ve learned to appreciate what a well-oiled machine Disneyland has been able to maintain for so long. I think if anyone can make this happen with the NBA, it’s them. Unfortunately, the COVID situation may pose a bigger risk for them in the face of a potential second COVID wave. With any luck, Disney should be able to handle this NBA situation and show the world that it is possible to reopen.

Much rests on the second half of 2020. If the surge in equities is any indicator, Americans feel we can reopen the economy and get back to normal sooner than later. As many have mentioned before, the market is always forward looking, six, twelve months ahead. And where equity prices are right now, it indicates that investors feel that in six or twelve months the economy will be back in shape. Initial data indicates that the economy is making a very sharp resurgence. Pent up from being locked down, the economy looks like it has some strength. Any set back in COVID will likely be a setback for the economy and markets. Question about the desire for Congress to pass another fiscal stimulus bill remains iffy at best. The big X factor here is the Federal Reserve. The very institution that Hamilton laid the groundwork for America’s central bank, then called the First Bank of the United States. They have pledged to remain aggressive and that has been able to prop up markets.

Unfortunately, given all these dynamics, we expect the second half of the year to be much of the same as the first half. Add to that a presidential election, and things will get even more exciting to watch. Volatility, as they say, will remain high. But if we have learned anything from the first half of this year, it is so hard to predict the irrational nature of markets. How could we have predicted the dramatic declines we had in March, and the crazy rally in April and May? What seems to be clear is that we cannot conquer the markets. We must conquer ourselves and our emotions.

Conquering our emotions is difficult, if nearly impossible, especially in the world of 24×7 news with the huge market ups and downs. To help, we employ an investment process that centers around asset allocation and focus on investing in high-quality assets. But investing in these high-quality assets is only the beginning. We are consistently monitoring our holdings for changes to their financials as well as any new opportunities that may come around. Some of you may see some increased activity over the next few months.

We also wanted to remind you all that Part 2 of our Portfolio Construction Series is this upcoming Wednesday, 7/15, and will encompass all things Fixed Income and why this asset class plays such a vital role in many portfolios. If you have yet to sign up, we have two sessions available: one at 11am PST (link to RSVP) and another at 4pm PST (link to RSVP). 

In addition, if you missed Part 1 of our Portfolio Construction Series: Asset Allocation, Building Blocks of Portfolio Management, here’s a playback recording for you to 
watch.

As always, if you have any questions please don’t hesitate to reach out to your Wealth Manager or myself.

Have a great weekend!

/ben