When winter turns to spring, we look for green shoots of plants and grass to emerge as a welcoming to the new season of growth. For financial markets when we have suffered an economic winter, we look for green shoots as a sign of return of growth. Such green shoots have emerged, yet there are others we must look for.
Three important green shoots have emerged: 1) A slowing down of coronavirus infections and related mortalities; 2) An agreement amongst OPEC nations (and the USA) to reduce crude oil output; and, 3) Federal Reserve monetary actions to quell credit and money market stress. As critical that I have been with Chairman Jerome Powell in the past, I do have to complement him for the monetary actions he has put into motion the past few weeks. This is a good complement to the fiscal stimulus that Congress has enacted.
Yet, there are other green shoots that I am looking for, most of which are signs of the reopening of the economy. These include: 1) Commencement of professional sporting activities. I expect that this will begin with the NBA and NHL completing their seasons, most likely going directly to a modified playoff format; 2) Apple reopening its domestic stores; 3) An end to the wild “fat tailed” market moves; 4) Additional PPP (Payroll Protection Plan) fund approvals by Congress; and, 5) Reopening of casinos and resorts, in some modified way here in Las Vegas.
As you can see, there are many green shoots that will be needed to get the economy and markets on the way back to normality. I believe there will be a rolling out of the economy across two dimensions: business sector and state.
Navigating the financial markets these past six weeks has not been easy. Clearly, those that panicked made mistakes. I have restructured portfolios to reflect opportunities in the current stock market environment and contain exposure to credit market stress.
Our fixed income portfolios were structured to “yield to maturity” with duration on average less than ten years. Hence, all that was “lost” were mark to market. That will be recouped when those bonds mature or are called earlier than maturity. The worst move is to sell those bonds at depressed prices before maturity.
In the stock world, I continue to focus portfolios on companies with solid balance sheets and business models for the long-term. In the short-term, you must be more of a trader than investor with a portion of portfolios. While I hated energy stocks just two weeks ago, green shoot opportunities did present themselves and I allocated some trading capital to SPDR Energy Select ETF (XLE) and Marathon Petroleum (MPC).
Overall, the stock market has achieved mean reversion. That is a good sign, another green shoot. Many analysts expect to retest recent market lows. I am not in that camp. I expect that as the green shoots continue to emerge, we will increasingly begin to price the stock market on forward expectations rather than trailing expectations. That means using 2021 earnings not 2020 earnings as our guide. That being said, this current upward market thrust can and will likely stall, so we must be careful not to be too complacent as many of us were in January and February.
P.S. – Remember that taxes are now due July 15 not April 15, so you can relax today.
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Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long MPC & XLE – although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right-hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
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