It is difficult to offer a meaningful outlook at a time when events and markets are changing so rapidly. The recap is fairly straight forward: in response to the voluntary closure of broad segments of the economy and what will be a period of shockingly bad economic data, financial assets declined precipitously last quarter. The S&P 500 fell 19.6% through March, including a 34% plunge from the all-time high in five weeks – unrivaled in depth and speed. The Federal Reserve responded with massive monetary and liquidity actions to ensure proper market functioning – also unprecedented in scope. Congress added substantial fiscal stimulus, which is being expanded currently.

In this environment, virtually any forecast will be made to look foolish by the daily flood of non-sensical data. Rather than try to predict when things might return to normal, economically speaking, we’re managing portfolios with the idea that most aspects of our lives will return to normal sooner or later. Until that happens, and probably for some time after, data on the economy will look horrible. Markets know this. Think of the recent stock declines as markets first realizing that the economy needs to be paused for a period of time. The broad indexes wouldn’t decline 36% in a period of four weeks if they naively assumed the data would remain remotely as strong as they were going into this realization. This is why on March 26, when weekly initial claims for unemployment insurance were reported to be 15 times higher than the previous week, the S&P 500 gained 5% on the day. (To put into context how incomprehensible 3.3 million UI claims is, the worst number in that data series during the housing crisis was 665,000 new claims in a week.) One week later on April 2, claims skyrocketed to 6.6 million–10 times the worst number reported in the last crisis–and the market closed up more than 2% that day also. My point is that markets move ahead of anticipated news. The same will be true of the recovery and rebound.

Daily volatility will continue as markets use new data points to assign probabilities to future outcomes. However, markets are not going to be roiled by shocking numbers on the economy. Markets take “known unknowns” in stride. The market knows the employment figures are going to be bad. It knows that corporate profits will be artificially depressed for a while. The real damage is done en masse when an “unknown unknown” happens without warning. For example, markets were not factoring any possibility whatsoever of events like September 11th, the icing over of the global credit market in 2008, or the notion that our economy will have to be shut down to fight COVID-19.

This is why we are investing for a return to normal “at some point” rather than trying to anticipate when the healthcare crisis is declared over. The fact is, even if someone could know exactly when it will be over wouldn’t provide any actionable investment strategies. It simply is not possible to wait for the moment things feel better to jump in and profit. The fundamental truth that undermines this seemingly intuitive “strategy” is that market volatility is not coincident with real-time economic data or news flow.

In this environment, we are following our disciplined approach to asset allocation and rebalancing where necessary. We are analyzing portfolio holdings and new investment ideas, ensuring that we own companies with very strong balance sheets poised to grow when business gets back to business.