We are now at a major transition point for the US economy. As the country emerges from the darkness of the COVID-19 pandemic, the economy is expected to rebound strongly.
The pandemic, however, has produced some profound changes in consumer behavior and business practices that may prove to have a lasting impact. These include e-commerce, working from home, on-demand video conferencing, remote learning/teaching and many more. Technology has been the driving force in human adaptation to the challenge of the pandemic. Some of the technologies that have helped us adapt were experiencing strong growth prior to the pandemic. COVID-19 threw their growth into hyperdrive. Some of these technologies will continue to experience strong growth in the post pandemic world because they are now perceived as just a better way to do things. Others will fade as their utility diminishes in a post-pandemic world.
Transitions are always uncomfortable and sometimes painful. Much of the discomfort and pain is the result of uncertainty. In the case of the US economy as it emerges from COVID-19, the uncertainties are many. A partial list of the more important concerns includes:
- Will the sheer amount of stimulus that has been applied to the economy including zero percent short term interest rates and trillions of dollars in direct government spending produce an overheated and inflationary economy?
- Will the explosive growth in technology continue?
- The pandemic has exposed weaknesses in our healthcare system. Will this exposure result in changes in the way we deliver and pay for healthcare?
- Will the biotechnology that allowed the development of multiple extremely effective COVID-19 vaccines in record time yield other medical advancements?
The answers to these concerns will take a few years to become evident. There is really no way to predict the outcomes and there is very little historical precedent on which to base projections. Good investment practice in transitionary periods is to watch, evaluate and be flexible. What worked pre-pandemic may not work post-pandemic. The only way to invest in transitional economic periods is to be willing to discard what is clearly not working and adopt what is. At the same time, with change as rapid as it is today, one can be fooled by short-term trends that have no staying power. This is a very good time to step back and say, “does this make any sense or is it sustainable long enough to be investable?”.
One thing is certain, economic transitions will bring us more volatile markets in the months ahead. Most of us make it through the transitional periods in our life by relying on the principles that we learned very early in life. Fortunately, there are also some timeless investment principles that can help you navigate through tough, unpredictable periods in the market.
- Market timing does not work – stay invested
- Know your tolerance for risk and do not exceed it
- Know what you own and why you own it
- Invest with and follow the advice of people you know and trust
At PSI we will do what we always do. We will study, we will monitor, and we will invest our client’s funds using those principles.