May Portfolio and Market Review

Paul Wildberger |
Categories
Investment
financial planning
Monthly Market Commentary

We’re enjoying significant outperformance YTD vis-à-vis the S&P 500.  S&P 500 is down -12.4% YTD, while our average portfolio is up +1.6%; we are effectively outperforming the general stock market by 14% points!!

 

Portfolio Review

Our defensive growth approach has served us well over the course of recent stock market and economic declines.  As reviewed this week, we have initiated a “Distressed Opportunity” component to our portfolios.  This includes ETFs and individual stocks in the airline, entertainment, and hotel industries.  Each of these distressed areas of our economy have experienced massive declines in business and stock price (>50% from February highs) since “the shutdown” of our economy.  It is reasonable and realistic to expecte these industries to rebound over the next 12-24 months, with prices potentially doubling from our purchase price.

 

Economic Review:

  1. GDP Q1/Q2 forecast:  The US economy contracted by -4.6% (annualized) in the 1st quarter, which only included 1 full month (April) of the economic shutdown.  Be prepared for a mind-boggling read on the 2nd quarter which could easily show a -30% annualized contraction.

 

  1. Jobless claims/unemployment rate: Initial jobless claims for unemployment insurance are now over 33mm since March.  Investors have sadly become desensitized by this number, as clearly seen by stock market advances in the wake of such economic devastating data (more on stocks to follow).  As we learn today that over 20mm Americans have lost their job with the unemployment rate near 15%, and underemployment closer to 22%, we need to step back and put this in perspective:

 

    1. Jobs create income which creates economic growth (now missing)
    2. This is the highest job loss since the Great Depression
    3. If you add ALL the job losses from 1960 to 2019, it is LESS THAN THE LOSSES EXPERIENCED OVER THE PAST 7 WEEKS!

 

  1. General outlook US and globally: My outlook is very dire for the global economy in the year ahead.  Shutting down a global economy within 2 months is unprecedented and will take months, or even years to recover fully.  This will NOT be a “V-shaped” recovery, implying we will bounce right back higher in the same manner and speed in which we dropped.  I’m flabbergasted to see “experts” on various news media tout this perspective – it’s pure denial.

 

Markets Review:

  1. Stocks: Once again, the stock market defies logic by focusing on emotion rather than fact.  Fact: economic info outlined is obviously negative; Fact: Q1 2020 earnings vis-à-vis Q1 2019 are running a -7% decline year-over-year and full year forecast are for double digit declines.  Fact: lifting social distancing and “opening” the economy does not mean we turn on the economy like a faucet.
    1. Yet, given these facts, the stock market has rallied significantly over the past month – FALSE RALLY FOLKS
    2. The stock market is typically much more emotionally driven than the bond market, which I follow with more confidence

 

  1. Bonds: Bond markets remain stable and show indications of future economic declines.  I always use the Bond market as a “logic driven” indicator of future economic direction – we are clearly headed downward.

 

  1. Gold: In Jan 2020, our forecast for gold by yearend was $1750/oz; today we are at $1725/oz.  I now believe we could see $1800-$1900/oz as this safe haven asset becomes more sought after in the months ahead.

 

  1. Oil: The biggest headliner this month, with prices capitulating well below $20/bbl.  As we now see the market stabilize in the mid-20s, we will likely continue in this range for the year, absent any significant external event.

 

Thank you very much for your continued trust and confidence in our firm as we continually strive to protect and growth your wealth.  Please let me know if you have any questions or concerns…and Happy Friday!

 

Paul

 

 

Paul Wildberger, CFP®, MBA

President, Integrity Private Wealth Advisors, LLC

10000 N. Central Expwy #400

Dallas, TX 75231

214-729-1460