Is It Over Yet?

By Kyle Thompson, MBA

With the world slowly beginning to reopen on the heels of the COVID-19 pandemic, this is surely the question on everyone’s mind. While the simple answer is a resounding “Hell no”, there is a bit more nuance based on the perspective you place on it. From an immunological perspective, I have zero expertise and defer to actual experts in that field to comment on the future of the virus (and you should, too!). However, as an investment and business strategy expert, I can comment on the financial, fiscal, and economic outlook and where we currently sit. From my perspective, there are dark clouds above us, but as with any storm, the sun casts a silver lining along the edges. I’ll use bullet points as much as possible, because no one wants to read a giant wall of text.

First, a simple market recap of the last few months:

  • Markets went down. Real fast.
    • Like, 35% in a month. That’s almost a record!
  • Markets went back up almost as fast.
    • As of today (5/11/2020), the S&P 500 is up almost 34% from its trough
  • Markets are still 14% off their peak from February.

If you use the stock market as a proxy for our economy and society (which is a common, but bad, idea), things don’t look so bad. We had a few crazy months, but recovered quickly and markets still look like they may be a bargain compared to their former highs. I’m not so sure that’s a great way to look at things. 

If you look at markets from a valuation perspective (rather than simple price), it paints a different story:

  • The forward looking price:earnings and price:book ratios are still high compared to historical averages.
    • P:E is currently 20.3 while the historical average is 14.7
    • P:B is currently 3.2, average is 2.7
  • If we use historical averages as our benchmark, the market is still overvalued by over 30%.
  • It is reasonable to pay high valuations when you expect high growth.
    • Analysts don’t expect a full economic recovery until 2022 (read more here).
    • That’s not exactly a high growth environment.

With the above in mind, things don’t look so rosey for US stocks. They became fairly “cheap” for a brief moment in mid-March, which I used as an opportunity to increase risk allocations for some clients. Those clients have done very well since then, but I am not comfortable increasing those allocations any further right now. I’m not saying we will have another crash tomorrow, but I would not be surprised if the next year or two are very rocky. We have several headwinds for growth and unique risk factors:

  • Primarily, decreased spending from lower demand.
    • The longer the economy remains closed or otherwise “inhibited”, the more pronounced this effect will be.
  • High unemployment.
    • We are nearly at 25% unemployment, which we haven’t seen since the Great Depression.
    • Unemployed people aren’t exactly big spenders.
    • Businesses can’t hire if no one is spending. (“One person’s spending is another person’s income”)
    • This creates a vicious cycle that impedes growth. The food and entertainment industries are especially hard hit.
  • Uncertain political and fiscal climate
    • The federal government has put certain measures in place to sustain spending and demand (stimulus checks, corporate bailouts, small business payroll loans).
    • The efficacy of prior measures is questionable (my small business clients can attest to this).
    • The longer the economy is shut down, the more fiscal stimulus will be needed.
    • With the presidential election looming, this may distract lawmakers from focusing on the real problems.
    • The more fiscal stimulus the government does, the higher the potential inflationary pressure in future years.

With the problems out in the open, the solutions are pretty clear:

  • We need a vaccine, and more importantly, an efficient production and distribution. This will be hands down the biggest headline when it happens, and there are more than a few companies working on this. 
  • We need to gradually and safely reopen the economy, using appropriate measures. Since I admitted I am not an immunologist, I can’t say what those are. Listen to the scientists.
  • We need continued and effective fiscal stimulus (emphasis on the latter) until the crisis is truly over. While Congress did better at this than I expected, there is plenty of room for improvement (the implementation of the Paycheck Protection Program was especially bad).
    • The stimulus needs to be on multiple fronts: large corporations, small businesses, individual stimulus checks, and extended unemployment benefits.
  • We need to throw away our red and blue political stripes, and work together as humans to get through this. This is what I am least optimistic about.

So far, my outlook has been pretty bleak, but remember how I mentioned a silver lining at the beginning? I’m getting there, I promise! I suppose I could have started with all the positive stuff, but it’s easier to appreciate the sunshine after it rains.

  • Crisis fosters innovation, and innovation fuels growth. In times of relative comfort (a few months ago), it is easy to accept the status quo, and not take its challengers seriously. However, with traditional modes of business upended, every company is suddenly looking at new options, from remote work for employees to virtual storefronts. We may very well innovate our way out of this mess.
  • Crisis fosters cooperation. While we have some people stubbornly refusing to abide by social distancing, the vast majority of people are at least trying, in order to protect our most vulnerable populations. In an era that is tragically divided into Red and Blue teams, cooperation becomes increasingly important, especially in legislative terms.
  • The fact that it is an election year means that politicians may actually be more action-oriented. Their efficacy may be questionable, but at least it is better than the bickering stalemate we are used to. 
  • While the US market may be overvalued, emerging markets are currently at historically low valuations. The S&P Emerging BMI Index currently has a P:E ratio of 12 and a P:B ratio of 1.2. That is very cheap and attractive.
  • Most importantly, we have been through countless other crises that seemed apocalyptic at the time. We made it through each crisis stronger than we were before, and this crisis is no different in that respect.

So, what can you do from an investment and business standpoint? Here are my best pieces of advice, in no particular order:

  • Make sure your portfolio is properly allocated. Now probably isn’t a great time to own 100% stocks, but it is never a good time to be “out of the market”. Make sure you are well diversified, including emerging markets and alternative assets, such as gold. 
  • Support your local small businesses in any way you can. Most of them have been left out in the rain and can use all the help they can get.
  • Don’t give up on your business! Small business owners are the lifeblood of the US economy, and this may be the toughest situation in the last century. We need you. Keep trying new lines of business, start/finish your digital migration, use technology to be more efficient. The economic recovery starts with you!
  • Call your congressional representatives and ask them what they are doing to help you. Hold them accountable, and show up to the polls to make sure the good politicians stay in office and the bad ones weasel their way into something else. If you don’t know who your representatives are, go to to get all their contact info.

I tried really hard to make this more than a rambling, chaotic mess, and I think I was marginally successful. I hope you learned something, I hope you feel more optimistic than you did before, and I hope you spread that optimism to the world around you. 

This article is for information and education purposes only, and does not constitute investment advice. Kyle Thompson, MBA is the founder of Leetown Advisors, a fee-only Registered Investment Adviser. For further inquiries or suggestions, please email Kyle at

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