Mind on Money: Identifying winners and losers in a changed world

Mind on Money: Identifying winners and losers in a changed world
By: Marc Ruiz Last Updated: May 11, 2020

Who doesn’t remember the “just wait till your father comes home” line? I know I do. As a hyperactive 10-year-old, I was always committing some egregious mischief. Our poor, exasperated mom would use the line to instill dread, and instill dread it would.

As soon as she dropped the threat, the neighborhood kid “partners in crime” would scatter, leaving me and my brother to stew in the prospects of our own imminent demise. Only later, after looking back on these events do we realize the stewing was a brilliant and intentional part of Mom’s strategy, and waiting for Dad to get home was, most of the time, worse than Dad actually getting home.

Only now as dads ourselves do we truly realize Dad was probably exhausted when he got home and the last thing he wanted to do was drop the hammer on a couple of preteen stooges. We now understand it was the waiting for the punishment, which was the true punishment after all.

Thanks to COVID-19, we have as a nation, all been thrust together into a collective “waiting for the punishment to come” period, only now we are not waiting for Dad, we are waiting for data. Data to tell us just what the COVID-19 virus and the government and societal response to the virus have done to our economy, and the results are likely to be ugly.

Perhaps the first dreadful piece of data foreshadowing our collective fate was released this week in the form of preliminary first quarter GDP numbers. GDP of course measures the amount of economic activity occurring in our nation, and prior to COVID-19 most economists were expecting GDP to grow somewhere in the range of 2.8% to 3.5% in 2020. GDP growth in this range is like a Goldilocks level of growth, enough to create opportunity, but not enough to drive inflation.

These estimates have been thrown out the window, to be replaced by the harsh reality of social distancing and government-imposed shelter-at-home orders. Preliminary first quarter GDP was revealed this week to a horrendous negative 4.8%, representing the fastest contraction in GDP growth since the 2008 financial crisis.

While these results are horrendous, they also may be the tip of a vicious spear. The first quarter of course included January and February, and while it seems like a lifetime ago now, those months were very normal and quite strong economically.

I have seen some forecast of second quarter 2020 GDP in the negative 30% range. Yes, negative 30%, which according to research by First Trust, has not been experienced in the United States since the demilitarization at the end of World War II. I, for one, never thought I would experience a 30% contraction in GDP, and yet here we are.

GDP, however, can be a fairly abstruse concept, being hard for the government to even calculate. What really hits home to real people is GDP’s tumultuous partner, unemployment. While I could poke holes in the federal government’s unemployment response in the CARES Act, the bottom line is the unemployment rate is exploding at a pace not seen since the Great Depression, with new claims for unemployment running 3,500% higher than just two months ago, before the COVID-19 lockdowns. Before it's all said and done, it's quite possible the United States could experience 25 million people collecting unemployment benefits. A true national tragedy.

Yet, the stock market goes up week after week? I understand this can be exasperating to market observers, but in a way I think markets and investors have come to the conclusion that when our economic “Dad” gets home, he’s going to be particularly exhausted, and we might just survive this yet.

Or said in another way, the data is too overwhelming bad to be useful, and so investors have already moved onto the next things. What the next things are, I would surmise is attempting to identify companies who are the winners and losers in our changed world, evaluating the likelihood of COVID-19 relapses when the orders end and ultimately evaluating the speed of the expected and inevitable bounce.

Opinions are solely the writer's and are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing involves risk, including loss of principal. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.