Just as our economy is starting to reopen, this week gives us two more reasons to celebrate: Star Wars Day on May 4th and Cinco de Mayo lands on Taco Tuesday. Star Wars fans will of course know the first movie released in 1977 was called “A New Hope.”
As I ponder on how the world will look like going forward, I find myself disappointed in calling what comes next as “a new normal”. Always the optimist, I rather embrace the future with a new hope.
Even though the S&P 500 index was trading at a new all-time high in February, we had been positioned cautiously as the economy and asset prices were stretched after a ten-year bull market. Stocks had benefited from cheap money and financial engineering while at the same time masking social and economic divides that have not been addressed since the Great Financial Crisis (GFC).
On Friday, the Bureau of Labor Statistics will release the April unemployment numbers. While not unexpected, given all the headlines of the last few weeks, expectations are for a massive jump from 4.4% to 16% in one month. We know certain areas of our economy have been especially impacted and may take months, if not years, to recover.
As we recover, investment opportunities and themes are emerging. Last year we talked about trends in deglobalization, which we think will continue as governments and corporations reconsider their global supply chains. In addition, we are actively debating the ideas of deflation now, inflation later, and how to position portfolios going forward. There is also a renewed case for investing in infrastructure and clean energy; as well as, 5G and social technology as remote working and learning continue for the foreseeable future. Finally, the latest theme being discussed is debt sustainability.
Being an investor in the debt of a company, is different than being an investor in the stock. There are differences with regards to ownership rights, as well as, the return profile for each one. Since the 2008-2009 recession, many companies and governments have issued record amount of debt at cheap rates. As I mentioned last week, one advantage with being invested with smart investors is access. The access to information and data to understand the impact of the current economic shutdown (and its recovery) on individual companies and management teams. Due to potential dislocations in liquidity and solvency, recent discussions are focusing on the opportunity set in the credit space of the fixed income market.
So, join me in not being satisfied with a new normal. Be a rebel and take on your galaxy with a new hope.
If you have any questions or want to have a conversation about the market or your portfolio, please contact Liz, Ed, Fred, Scott, Tyler, or myself. Your Sendero team is ready to help.
Best Regards,
Amaury de Barros Conti
Vice President, Research & Strategy
210-930-9409
aconti@sendero.com
