May 2020 Market Update

Up, up and away!!!!  Whether it’s the economy opening back up or the stock market, both were on the rise at the end of May.  Most of us are witnessing a return to some semblance of normalcy.  I can no longer count on one hand the number of cars I pass driving to and from the office.  And as much as I would like to have my college-aged daughters with us at the dinner table every evening, they are now back to eating with their friends (6’ apart, of course!), leaving my wife and me alone to enjoy the fresh salmon that is back on the shelves.

The question that we all want answered is whether the virus is behind us, either because masks and social distancing slow the spread or because a vaccine puts the virus in our rear-view mirror.  The markets continued to rebound in May signaling an optimism that the worst is behind us, with the S&P 500 regaining another 3%, led by tech, healthcare and stocks for the “stay at home economy”.  And as I write this, stocks representing an “open for business economy” such as casinos, airlines and retail are all steadily on the rise, albeit well off their highs from early this year.  As we mentioned in April, the market is also reflecting the aggressive government stimulus which is enabling some of the previously mentioned businesses to limp along until the economy re-opens and providing unemployment benefits that often exceed hourly wage rates for those left without jobs.  Finally, with gasoline prices at 2004 levels, consumers have a built-in savings mechanism, which is likely to stimulate economic activity.

We still believe the market will be choppy in the near-term with a resurgence in virus cases still a risk and because we believe business sectors that thrive on large groups of people will find it challenging to succeed.  After all, a restaurant that can operate at 50% capacity will do well to produce 50% of the profits of past years.  We also think the 15% unemployment rate will continue to be a drag on the economy.  These headwinds will be balanced against additional government stimulus and low interest rates.

The  Shiller P/E ratio and the “Buffett Indicator” both continue to suggest the market is overvalued compared to historical norms.  For perspective, the Buffet Indicator is at 145%, within a hair of the all-time high of 148% before the tech bubble burst in 2000.  As a result, we continue to recommend a higher percentage in cash, favor high-quality companies with strong balance sheets, and add in sectors that are undervalued or will benefit from the rapid technological changes such as cloud computing, cybersecurity and video gaming.

If you have any questions, please feel free to reach out to us.  We are back in the office full-time at 513-554-1472 to answer your calls or setup a Zoom video conference.  And of course, you are welcome to email us at any time.

Brian Kellett, brian@kellettschaffner.com. Phone 513-312-6067

Jared Kline, jared@kellettschaffner.com. Phone 513-768-2238 (call or text)

Nick Gemmel, nick@kellettschaffner.com

You are also welcome to call the office at any time and we will return your call as soon as possible. 513-554-1472.