Second Quarter 2020 Commentary The word of the year is ‘unprecedented’. We would normally say ‘times are tough’, but these days, it’s simply unprecedented. From a global pandemic to an economic shut down to civil unrest, the events we’ve seen so far this year have been extraordinarily difficult and disturbing. Amid this unprecedented time, it may look like the stock market is not aligned with what’s happening on Main Street and it has left many wondering why. To make sense of this, it’s important to understand that markets are forward-looking; always anticipating what will happen 6-18 months from now, given what we know today. By contrast, economic data is backward-looking; always telling us what happened in the previous period. Essentially, today’s market prices are based on future expectations. Economic data can drive the market up/down once it is compared to market expectations. Uncertainty is another market driver. As we all know, the market hates uncertainty. No one anticipated this global pandemic or how it would rattle our economy, the markets, and every aspect of our daily lives. Once the virus hit our shores, the markets sold off because investors had predicted the first quarter of 2020 would play out differently 6-18 months ago. By February, expectations had drastically changed. By March, investors were pricing in a deep recession (or even a depression, by some accounts). That view changed again when the Federal Reserve offered supportive action and Congress passed the CARES Act. Investors saw this government intervention as a bridge that would save us from a total economic collapse. Not only did it add hope to a hopeless situation, but it also offered a level of certainty. Before the novel coronavirus, our economy was doing relatively well. At this point, a recession seems inevitable, but we won’t know for sure until after two quarters of negative GDP (i.e. Gross Domestic Product, which measures economic growth) are reported back to back. Since the markets have already priced in a recession, we shouldn’t see much market movement when the actual numbers are released unless they are much better or much worse than expected. This recession is different because the economy was shut down on purpose, on a temporary basis, in response to the public health crisis. Unfortunately, there is no perfect solution. Authorities took extreme measures to flatten the curve. They felt keeping people at home (and limiting their need to leave their homes) was the best chance to contain the virus. We saw states and counties issue a Shelter-in-Place mandate and shut down businesses in an effort to slow the spread of the virus, alleviate pressure on the health care system, and save lives. As the economy reopens, investors are watching closely in anticipation of a possible second wave. We expect more market volatility. We have navigated tough markets before and we will again. We know that everything gets sold off in a bear market; the good along with the bad. It’s not wise to sell something in a panic for $0.60 when it’s worth $1.00. It is also unwise to try to avoid the next dip. Markets move fast, so timing the markets never works. You just end up selling low and buying high. Instead, it’s better to confirm the investments you own still serve a purpose in your portfolio. As part of our strategy, we’ve reviewed your portfolio, kept what still makes sense to hold, and liquidated or lightened up positions we feel will be challenged in this environment. We’re also adding to quality bonds and large growth stocks, as needed. We will continue monitoring your portfolio, especially exposure to dividend growth stocks and real estate. It’s often hard to stomach market volatility when you are not sure how it impacts your financial goals. We see this as a call to action. Putting news headlines into perspective is the best way to ease your concerns. Now is a good time to evaluate your risk tolerance, check your financial goals, and see if there is a reason to make changes or not. Your financial wellness is important to us and we are here to provide guidance. Please contact us if you’d like to check-in and get some perspective. Thank you for your trust and loyalty as we navigate through this unprecedented time. We are in this together. Stay safe and healthy.