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Ooooh, that Smell... By Morgan Christen CFA, CFP, CDFA, MBA, CEO and CIO Hello, Can't you smell that smell? The Journal of Neuroscience examined the way emotions affect our sense of smell. After exposing subjects to different type of anxiety-laden images, they found that neutral smells became displeasing and bad smells became worse. This economy smells. Add in the anxiety of the Coronavirus, and the stench becomes unbearable.

There is a disconnect between Wall Street and Main Street. Those on Main Street are holding their noses while Wall Street frolics like Julie Andrews in the opening scene of the Sound of Music. What gives? Sir John Templeton said it best. "Bull markets are born on pessimism. They grow on skepticism. They mature on optimism. And they die on euphoria."

There is a lot of skepticism with most Americans. COVID-19 does not have a cure, companies are going bankrupt, jobs are going away, Congress is fighting over the next relief package and we are adding a tremendous amount of debt. Ooooh, that smell. But the hills are alive in the big tech names that dominate the S&P 500. The flip side is that the S&P 500 ex mega-cap growth stocks are still down (top ten up 35%, the rest down more than 10%).

Beyond is hard to see right now. A large chunk of S&P 500 companies have withdrawn their guidance. How is the market moving/holding without guidance? Liquidity, baby. The monetary stimulus from both the Fed and Congress cannot be ignored. We have gone beyond the levels from the last recession and the checkbook has not been put away. What do you mean I am overdrawn; I still have checks? The individual investor has jumped from 10% of the total to 20% of the market. I use the term investor lightly, as many are bored and gambling on broken stocks. Institutions are also buyers, as they have been on the receiving end of the Fed's largess. With real yields on Treasury bonds (Interest rate minus inflation) negative, cash and Treasuries stink, making stocks smell pretty, pretty, pretty, good (thank you, Larry David).

Now What? For the moment, investing in stocks is working. We are not suggesting an all-in strategy, but liquidity and momentum are on our side. The economy stinks, but not yet foul. The bad news will continue, so be ready for it. The stink will get intense and your anxiety may spike. I would posit the stock market remains steady during the stench. The concern comes when the wind blows and the smell starts to subside. Once we get a vaccine or herd immunity, the world can come out of isolation and get back to work. The murkiness since March will become clear. Companies can now give guidance; earnings will matter and things will need to adjust. This will not be just in the stock market. As the fog lifts, get ready for the great repricing. Changes will come to stocks, real estate, healthcare, college... just about everything. But the time is not upon us and may be deep into 2021 before there is clarity.

As Yogi Berra once said, "You've got to be very careful if you don't know where you are going, because you might not get there." Working for your financial independence is our forte. Keeping you on track with your plan and helping you avoid the stench is our goal. If you are feeling anxious about the market, please do not hesitate to call us. We continue to rebalance and be vigilant during these times.

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DISCLOSURES: Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. The S&P 500 Index is a free-float market capitalization weighted index of 500 of the largest US companies. This index is calculated on a total return basis with dividends reinvested and is not available for direct investment. Treasury securities are negotiable debt issued by the United States Department of the Treasury. They are backed by the government's full faith and credit and are exempt from state and local taxes. The indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results, and there is always the risk that an investor may lose money. Diversification neither assures a profit nor guarantees against loss in a declining market. The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice. The Smell Lyrics by Lynyrd Skynyrd.