In the 244 years since our founding, we have seen many recessions and depressions. Today, most of us associate economic pain with recessions, which are painful but not as catastrophic as depressions. However, depressions were more frequent events during the 1800’s when our economy was primarily agriculturally based. I tried explaining this to my kids who immediately quipped, “Do you remember those days?” It seems another side effect of Covid-19 is a sense of humor! But I digress.
Many have argued that the severity of our current economic collapse is akin to a depression. Be that as it may, my objective is not to categorize what we are experiencing. I am reminded of a famous quote by Harry Truman (which has been used by many thereafter):
“It’s a recession when your neighbor loses his/her job; it’s a depression when you lose yours”.
Out of every economic crisis emerge winners and losers, which is why I decided to write this article. With all due respect to anyone that has lost income during this crisis, an economic downturn can and does offer opportunity for building wealth. According to Tavis McCourt, Equity Strategist with Raymond James, there are four phases that play out from the beginning of a recession/depression to an eventual recovery (as pertaining to the stock market):
1) Deer in headlights – rapid decline in equity prices as the market is recognizing economic risks before the government does.
2) Monetary Bazooka – central banks respond with monetary stimulus to cushion the blow
3) Fiscal Response (this is the phase we are in now) – this phase is complex and can take some time to develop. Remember when Congress passed stimulus in March rather quickly? Now both parties are far apart on the next stimulus package and have gone to recess without a deal.
4) Sifting through ashes – the final phase involves figuring out what the forward-looking expectations are related to company earnings and the appropriate price to earnings multiple that should be applied to arrive at stock valuations.
This begs the question, “Which companies and sectors will emerge as the winners as we sift through the ashes?” An obvious beneficiary of the pandemic has been online retail. Are you on a first name basis with your UPS or Amazon delivery driver yet? What does this increase in digital commerce mean to other sectors? Will we need the same amount of office real estate going forward? During the six weeks or so when we went “virtual” in my office, I did continue to come in alone because there were too many Zoom meetings already happening at home (I have three school age kids). What about traditional retail space? Do malls need to be so large?
Cybersecurity may be another benefactor of the pandemic. The more we do business online and conduct meetings virtually, the more security we will need to keep our data safe. Another disruption has occurred in medicine. Have you had your first medical consultation virtually? If not, your next “checkup” may be done in the comfort of your own home. Whenever the pandemic ends, I believe we will have become accustomed to many ways of life that will be the new normal. You should consider allocating your investments accordingly.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Prior to making any investment decision, please consult with your financial advisor about your individual situation. Any opinions are those of the author, and not necessarily those of Raymond James.
This article was written by Gus Vega, Managing Partner, Total View Advisors and Branch Manager with RJFS. He can be reached at 786.315.4870, 9155 S. Dadeland Blvd. # 1014, Miami, FL 33156. Total View Advisors is not a registered broker dealer and is independent of Raymond James Financial Services, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA / SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc.