September Update, 2020: Back to School (Hopefully?)

The summer is drawing to a close and all eyes are on the back to school situation. Will COVID-19 jump back onto centre stage and cause the recovery to stall? Will stock prices hold up if things take a turn for the worse? Will the election south of the border plunge society into uncertainty if the election results are challenged? 

Here’s what we think:

About one third of parents are highly nervous about sending their kids back to school and are considering/looking for alternative solutions. Two thirds are looking forward to getting the kids out of the house. Given the nature of the virus, it seems certain that there will be setbacks and people will have to adapt as they have in the past. Technology and COVID-19 will continue to influence our lives and the educational system will be forced to adjust. Previous generations have survived turmoil and this one will too. Outbreaks are a certainty. Our society has adapted and while the adaptation is very tough and it impacts the economy, its economic impact seems certain to be blunted by continued government assistance.

The consumer has been on a spending spree. Boats, bikes, tools, and things for the home have been flying off the shelves (mostly from warehouses and Home Depot stores) as consumers’ old spending patterns (travel, entertainment, and eating out for example) are not viable outlets for consumption. A combination of forced saving, government assistance, and pent-up demand is rippling through the economy and some businesses are booming.

Jobs are being created to fill the void left by the above-mentioned boom in certain sectors, but much work needs to be done to re-purpose those jobs that have been lost. Low interest rates and government assistance can be expected to continue to support those still struggling. Those not contributing to the economy are becoming a smaller crowd. Good things are happening, just not fast enough to grab the headlines.

The U.S. election in less than 60 days will give us all cheer if whoever is elected goes quietly into the night and gets back to the task of bailing everything out that needs fixing. Whatever the outcome, both parties are going to continue printing money and keeping interest rates low. That’s what politicians do when they finish yelling – they spend. The election hullabaloo will give way to a newfound crisis to occupy the headlines; probably a continuation of the ‘too much debt’ and ‘this person did that’ variety of intrigue that fills newspapers and makes Facebook so much money.

The businesses destroyed by COVID-19 will continue their decline and those adapting will continue to accept the new realities of having to appeal to a customer who needs things in a different manner. LinkedIn is full of examples of people re-purposing their skills for new horizons. Teenagers were seen running makeshift kids camps everywhere this summer. The spirit and innovation of humankind will continue to find ways to make ends meet.

All the while, government is holding banking to the rule of ‘do no harm to the consumer.’ Everyone is playing nice so far and the banks, to their credit, are earning and reserving pretty well in this new era. So far, so good. We expect the dividends to continue as long as the money keeps circulating and, on that front, everyone agrees that continuing to dance is better than turning out the lights.

Much talk about the ‘glass half full’ market has centered on a small number of stocks leading the market to new highs, and that’s true., Apple, Facebook, Google, Home Depot, Thermo Fisher Scientific, United Health, Microsoft, and even Disney (all stocks you own) are lifting the markets higher, and rightly so. They are providing amazing products and services and doing so with rich profit margins. That’s why we invested your money in these businesses. People worry about the success of these companies and wonder how much longer they can sustain their lofty levels, to which we argue, for as long as they continue to offer compelling value to their customers.

The economy continues to slowly recover, assisted by massive government support. Expect this to continue. The real worry will be when we see the whites of the eyes of an effective antigen for COVID-19 and how investors adjust to reduced government stimulus because of a hoped-for cure. For investors, that day seems to still not be the primary consideration and for your portfolios the companies you own are doing just fine as is.

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