A big “Thank You” to those who were able to attend our first Stone Bridge Web Conference. It was a great turnout with some very good questions from our guest. We focused on COVID and Healthcare, touching on topics such as the reopening of the economy, the race for vaccines, and the impact on sports. Our featured speaker, Jen Nichols, CFA and Client Portfolio Manager with Janus Henderson, shared with us a little science behind the virus as well as a couple of interesting take-a-ways.
Interesting take-a-way number 1: There are roughly 140 different companies currently working to develop vaccines for COVID-19. While some of these companies are at more advanced stages of their vaccine development, and all are working “around the clock”, no vaccine is expected to be available in sufficient volume for the masses until 2021. Take-a-way number 2: Jen and her team at Janus are becoming less concerned about the impact of a second outbreak of COVID-19 than they were initially, because of the rapid advances in medical understanding and treatment of the virus during this first outbreak. While we most certainly recognize that there are differing opinions with respect to a second outbreak, Jen and her team feel that hospitals and medical professionals are prepared to manage a second wave more effectively than the first wave and thereby reduce the impact of a potential second outbreak.
She also discussed the controversial idea that the general public’s immunity to the virus is higher than official exposure counts would suggest because of the unknown number of individuals that had COVID-19 but were asymptomatic and were therefore never tested. She refrained from suggesting that this reduces the risks associated with a widespread second outbreak. While it has been widely discussed that once you have COVID you are more likely to be immune, she argued that much more testing will be necessary before any person or group could definitively make this statement.
Speaking of statements—and of awkward transitions—we have seen solid improvements in account balances since the March lows. As portfolio managers, we continue to be active and on the lookout for opportunities. Recently in many of our client’s portfolio, we took gains in Energy and Technology stocks and added to positions in Consumer Discretionary and Biotech stocks. In a more long-term play, we added positions in Gold and Gold Miners to many portfolios. Our rational is simple: we see an increased risk to higher inflation (though not hyper-inflation) in the coming 12 to 24 months. Many of the Fed Governors actually support the notion of letting inflation rise slightly higher than their target before raising rates as our economy recovers. There are massive amounts of stimulus being injected into the global economy not just by our Federal Reserve but by central bankers globally. In fact, more stimulus was added during the weeks of the pandemic than during the whole of the Great Recession. This stimulus has been a real boost for the economy and for stocks by preventing a liquidity crisis like the one we experienced during the Great Financial Crisis, but we believe that over time it could be inflationary. And if we indeed see higher inflation, the addition of Gold and Gold Miners will benefit client portfolios.
Right now, the economic recovery is looking very much like a “V”. We hope this is the case but are still cautious as we monitor the impacts of additional government stimulus on businesses and employment. Several commentators suggested that we take the incredible employment gains reported for April with some caution. One pointed to the challenges faced by the Bureau of Labor Statistics, which generates the employment report, in processing such large numbers of individuals. Another pointed out the challenge of categorizing the significant number of people who, thanks to the Paycheck Protection Program (PPP) and the speed with which the economy is reopening, fell in the categories that are not clearly “employed” or “unemployed”. Regardless, the positive numbers from both of last week’s employment reports suggest that the PPP and the reopening of the economy are having the desired effect of reducing the number of people who are clearly “unemployed”.
Within the last few days we have seen an amendment to the CARES Act and specifically to the very popular PPP as well as the Economic Injury Disaster Loan program. These recent changes allow for more flexible terms and uses of funds as well as a longer timeframe for implementation and repayment. Hopefully, these modifications will provide further benefit to the economy.
Please reach out with any questions or concerns. And while it may look different than normal, we hope that all will have a safe and healthy Summer.