April 28—Chief Investment Officer Tony Roth is joined by Credit Suisse Managing Director and Chief U.S. Equity Strategist Jonathan Golub, and Wilmington Trust’s Head of Investment Strategy Meghan Shue, to discuss how the U.S.’ response to COVID-19 has impacted equity market valuation and stability, how the markets may fare in a less globalized society, and what sectors to consider, despite this contracting environment.

 

Jonathan Golub 3.jpg

Jonathan Golub, Managing Director, Chief U.S. Equity Strategist, Credit Suisse

 

 

Please listen to important disclosures at the end of the podcast.

Wilmington WealthWise with Tony Roth
Episode 8: COVID-19 Stock Market: Suspending Belief
Tony Roth, Chief Investment Officer Wilmington Trust Investment Advisors, Inc.
Jonathan Golub, Managing Director, Chief U.S. Equity Strategist, Credit Suisse
Meghan Shue, Head of Investment Strategy, Wilmington Trust Investment Advisors, Inc.

Tony Roth: Welcome to Wilmington Wealth Wise, the podcast dedicated to financial literacy, where we take complex ideas from the investment world and make them accessible to everyone. I’m your host, Tony Roth, Chief Investment Officer of Wilmington Trust.

I am incredibly excited to welcome two guests today. The first, Jonathan Golub, is a former colleague of mine from two firms, Bear Stearns and UBS. Currently, Jonathan is Managing Director and Chief U.S. Equity Strategist at Credit Suisse, where he’s responsible for the firm’s equity outlook, including market and earnings forecasts, as well as sector and thematic recommendations.

Also joining today is my current colleague, Head of Investment Strategy at Wilmington Trust, Meghan Shue. Meghan, as many of you know, manages our portfolio positioning and is a frequent contributor to CNBC and other media outlets.

So, we have a great group here today to talk about what’s going on in the stock market and, in fact, the title of our podcast is COVID Stock Market: Suspending Belief. If we think about all the traditional measures that tell us where the stock market should be heading and we think about what’s going on in the economy, it feels like stocks shouldn’t be where they are today.

So, what we’re going to explore is the disconnect between the stock market and what we see happening in the economy.

So, Jonathan, I think the place to start probably is just to establish a baseline. Why is it that for those of us that have been doing this for decades, if we’re long equities right now, we should be waking up in the middle of the night in a cold sweat?

Jonathan Golub: You know, Tony, I think that what we need to do is to separate out what’s going on in the markets from the fundamentals and to almost ignore the stock market price action and say if we’re obviously in a recession right now, how deep or rough is this recession compared to normal. So, if you look at job losses in the millions of jobs that we’ve lost in only the last, you know, four or five weeks and then compare that to what we’ve seen in other contexts, we haven’t seen anything since the Great Depression which has this kind of job losses.

If you look at the size of the Fed’s balance sheet and the type of instruments they’re buying, corporate bonds, municipal bonds, things of that nature, and then you look at the government deficit that are being put against this problem compared to what we would’ve done even in the financial crisis and the potential or likely loss GDP, the forecasts right now are for the second-quarter GDP to be somewhere between three and five times worse than it was at the worst point in the financial crisis. And then you were to say, okay, great. We have some—we have—now we’ve calibrated this environment versus other situations and it’s pretty bad. How much did the stock market sell off during the ’08–’09 period? How much did it sell off during 2001–2002? And then, once we know that and how much worse or better it should be this time around, we can then see whether the stock market is fairly discounting that.

And if you do that kind of math, you say, oh my gosh, the market should be down by more than 30% or 50%, potentially much more than that. And so, then the question you have to ask is why is there a disconnect? And I think the real simple answer is that the Fed, if you will, has their thumb on the scale, that they are the incremental buyer. And it’s not that they’re buying equities, but their incredible engagement in the capital markets is effectively forcing equity valuations higher. And so, there is something else going on in the equity markets that doesn’t reflect the fundamentals.

Tony Roth: Well, yeah. And as you pointed out, Jonathan, if you look at the value of equities from a price-to-earnings standpoint, the multiple that equities stand at today is actually higher than before the coronavirus hit, because earnings have come down. Prices have come down only about 13% at this stage. Earnings have come down a lot more given what’s going on with the economy.

So, we’re in this very odd scenario where fundamentals should tell us that stocks should be much lower, but they’re not. So, let’s dig into this idea of the Fed providing a backstop. And it’s not even just the Fed, right? It’s also Congress and the legislature and the very significant many trillions of dollars fiscal backstop that we also have. What’s the framework for thinking about how we should adjust our expectations for what fair value in the stock market is given this incredibly strong vector that’s sort of trying to keep the economy afloat, trying to keep our heads above water, which is the combination of the Fed and this massive fiscal intervention on the part of the U.S. Congress?

Jonathan Golub: Well, first of all, it’s probably the single most difficult question to answer. But, let’s start with the first part of this thing, which is where are we? We had a 19 multiple on a forward basis, a 19 P/E on February 19th when the stock market hit its all-time high before rolling over, and right now the market’s trading with probably a 21 multiple. Now, if you look at other recessionary periods, we’ve never had a situation where you leave a recession, you know, way more expensive than you entered that—there’s no historical precedence for that.

The second thing is it’s the Fed and the U.S. government can pump as much money as they want into this, especially with the ability to print, over the near-term.

But, over the long run this situation is going to re-normalize and you’re going to pay something which looks like a fair value on this. The first question I ask myself is how long will it take for the earnings to recover? And historically it takes about 2.5 years for earnings to fully recover. If this time it takes three years, which would be a blessing, because this is obviously a worse recession, then you would think that the market should get back to a fair value at, you know, over that three-year horizon. And if you think that we’re going to get to a 19 stock multiple, which was roughly where it was trading before, not—we don’t have to worry about where it is today or next month, but further out, two-three years in the future, then that to a certain extent should cap the maximum amount of upside that you’re going to have in the market. There shouldn’t be more value out there than would be rational based on the earnings stream.

So, I start by looking further away and then backing into, okay great, if the cap is that we have, you know, 20% or 15% or whatever that number of upside is over the next two to three years, then, okay great, what am I willing to pay for that opportunity? And it’s lower than where we are now.

Tony Roth: One of the ways that I try to dimension the support that the government has provided is that I think of them as cash transfers. Essentially, the government is engaging in cash transfers from the Treasury to small businesses and consumers. Then on top of that, of course, you have the Fed, which has stepped in and provided significant direct support for the credit markets. That’s all providing indirect support from a confidence standpoint to the stock market. And, of course, the Fed has also said that they might consider buying stocks as well.

So, all that’s going on in the background and you have these cash transfers happening to consumers and businesses. And so, when we say that the economy is down 30% for the second quarter, which is our forecast, actually between 30% and 40% depending on how fast different areas start to open up again.It would actually be significantly lower if we didn’t have all this intervention.

So, at some point one needs to ask when will the government run out of money in the sense that it becomes politically unpalatable to continue this. And we’re in an election year, which is what’s even more fascinating about the situation. Because, unless we have a really quick reopening across the country without having new cases to force people to go back into lockdown, we’re going to need to have extensions of this fiscal support that’s going on. And as you get closer to the election, it becomes less clear how that’s going to play out.

Jonathan Golub: The thing which is really wonderful about being in the United States is that because we are the global currency and we are the strongest and deepest economy in the world, no matter how damaged it is right now, there truly is an almost infinite amount that the government can stimulate. Now, that does not mean that there is not a massive hangover on the other side of this. But, their ability to pour capital into this to keep things moving along is greater than it would be if you were in, let’s say, a country in Europe or someplace else that doesn’t have the flexibility to be able to run deficits, if necessary, the way we are.

And, I also think that we need to ask like, why are they doing so much more now than they did during the financial crisis? Because this is legitimately hitting the working person and the small business guy much harder than it did during the financial crisis. There’s more of a sympathy or a focus on doing the right thing by that individual that’s displaced than helping, directly helping their employer.

And so, because this is hitting employment so hard, the response is much larger. And so, I think that the reality is that this is going to go on for a while.

Tony Roth: But if you look through to let’s say the election, it would seem that the unemployment benefits are going to run out I think in July and—the expanded unemployment benefits—and clearly the support for businesses, the Payroll Protection, etcetera, that’s going to run out as well. Do you think that Congress is going to just continue to fund these things? Or do you think that we may have a situation where we’ve got a real shortfall in this backstop, the market starts to adjust for that?

Jonathan Golub: No. I mean I think it’s widely believed that they’re going to continue to roll these, you know, for as long as they need to. And, if this takes us, you know, into the fourth quarter before we start to really reengage in the economy, even if they—even if we open up our doors, if there’s still a reluctance for people to travel and get on planes and go to restaurants, there’s still going to be people who are displaced and I would assume that we’re going to probably see these government programs going into probably year-end or something like that.

Take a look at how long the government support was for people who were displaced during the financial crisis. And if this is worse, you’re really looking at a pretty long period. Now, the right thing for the government to do was not to say this is an endless check and it’s going to last forever. They put it out for a few months, because nobody knows how long this is going to be.

And I would be shocked if we don’t see these programs extended.

Tony Roth: So, Meghan, one of the things that you and I experience as two colleagues is that I often call you up, fortunately for you not at—not in the middle of the night when I break out in a cold sweat, but usually in the morning because I’m nervous and you usually talk me off the ledge. Talk to us about some other things, some other reasons that the market may be a little bit more buoyant than if you just focused on those core economic fundamentals that Jonathan described for us would lead you to basically want to go hide under the covers all day.

Meghan Shue: It’s a great question. I think two things that come to mind for me. One is the duration of this economic fallout and the second is as it relates to interest rates and much of—both of those relate to some things that you’ve already discussed.

So, on the duration of the economic fallout, Tony, as you mentioned we expect the second quarter to be very ugly. Contraction of anywhere from 30% to 50% I think is a realistic range.

And so, if you’re looking at as a long-term equity investor, the question is, is this a very deep—we know it’s going to be a deep contraction, but is it relatively short-lived? It could very well be that this is the deepest contraction on record, but also the shortest on record. And if you’re looking at a market that does take a couple years to get back to trend, but it does get back to trend, then it’s quite possible that investors are willing to look through that to the next, you know, maybe 2021 or 2022 earnings that are going to eventually resume back to trend.

If, however, this is more of a permanent impairment of the earnings stream and the earnings trend that we’ve seen historically, similar to what we had in the global financial crisis, which I would describe as more of a permanent derailment of that trend, then it’s likely that the market is not appropriately pricing in the downside and the permanent loss of earnings that we could see. But I do think one other reason why the market might be holding up is as it relates to the unprecedented stimulus, that you’ve both already discussed, and the earnings multiple. And what we’ve seen from the monetary stimulus is that it has had the effect of compressing credit spreads and reducing interest rates. And as we know, interest rates do factor in to how we value the—what is the—future stream of cash flows coming from businesses and the equity market broadly.

The reduction in interest rates and the risk-free rate that we’ve seen has been significant and this is probably adding to support for the equity multiple. And I think as we look at both the interest rate environment and then historically it makes it more difficult to compare historical valuations, because interest rates are at all-time lows and lower than we’ve ever seen them or expected to see them.

Tony Roth: The point on interest rates really resonates because if you think about the last half decade, we’ve talked about the fact that multiples, even in a very low growth environment, have been justified being at a higher level than we might otherwise be comfortable with, because the rate environment has been so low. So now, the rate environment goes even lower. That’s just another reason that supports equities.

So, Jonathan, coming back to you, if you think about the case that we’ve just made for sort of the unlimited backstop of the both fiscal and monetary system and you think about—let’s assume that by the middle of next year we have a vaccine, maybe by the fall of next year most people in this country have had a chance to either get vaccinated or they’re immune, is there a realistic scenario that you worry about that could cause sort of a violent reversal in the market where we go back down? What do you worry about now that we’ve sort of established this very powerful safety net, which is sort of holding up the market?

Jonathan Golub: I think Meghan actually kind of laid out the storyline and I would kind of almost like punctuate the, you know, three different things that I heard from her comments. The first one is the virus is actually going to tell us what’s going to happen. It’s not—the Fed can do whatever they want. The U.S. Treasury can go, or the U.S. government can go and support, you know, somebody who’s been displaced.

But, the real, most important, question is when we open up the economy, and we’re going to, what does it look like in terms of recurrences? When do theme parks reopen? When do we get back to theaters? And if we see that as we reopen that this starts to—that the number of cases begins to rise again, and they may not rise where, you know, in the same locations, but they may rise around the country. Then that means that this thing is going to take a further leg down.

But, it’s very possible that once we start to open this up that maybe for seasonal reasons or for other reasons that, in fact, the worst is behind us and we don’t get those recurrences and/or that the number of deaths, as much as it’s unfortunate, will be one that won’t overwhelm the hospital systems and there’ll be enough testing in place and maybe some therapeutic solutions that won’t be perfect, but will lower the mortality and that we’ll actually be able to successfully reengage. And that’s really the most, I think probably the most important issue.

The second issue is, how do you reopen the economy? And this is the single area that I think people underestimate the most. When I hear governors saying, well, maybe we’ll start restaurants by pushing the tables a little further apart from each other, maybe they’ll open up only at 50% of capacity and then they’ll increase from there. The question is if you run a restaurant with only half of the guests there on a Saturday night, does the restaurant make money or does it lose money? If it loses money, then they’re not going to want to open up.

Tony Roth: In fact, that’s what they’re seeing in Wuhan. They’re opening—or and they’re seeing it in Germany actually as well with the shops. They’re opening up but no one’s coming in, right. People, just because there’s no one next to me, there’s someone two tables away, it’s like going on an airplane. Just because the middle aisle is empty doesn’t mean that I want to get on and off that airplane, and I want to sit next to somebody that’s four feet away from me instead of literally four inches from me.

I mean this has got to push the savings rate up as well. So, it’s going to affect, for some period of time, consumer behavior. It’s not just open it up and they’ll come.

Jonathan Golub: Right, if we’re allowed to reengage there’s going to be a sluggishness in our comfort to get back. But even if let’s say it magically went away, businesses still need to hire back those workers and it takes a little bit of time to do that. Businesses are going to have more financial debt and, therefore, they’re going to want to hold back on advertising budgets or capex for a period of time, because they need to fix their balance sheets and replenish those things.

And so, the process of renormalization for a business, even if there was no virus at all, is not seamless. If we end up here with a 15% or 20% unemployment rate at the peak, we’re not going to get back down to 3.5[%] in a year. It’s going to take longer. We may get a big decline and it could be the fastest improvement we’ve ever seen. But then, it’s still going to take some time to get back to where we were.

And then, finally, the last thing and you talked about what’s permanent and, Meghan, I think this was a really key issue is, if we end up with big deficits and debt and stuff like that on the other end of this, the government is going to either have to print a lot more money or they’re going to have to raise taxes. And, Meghan, I would love your take on this, but what does that do for growth if taxes have to go up? Or what does that do for inflation if money printing has to increase in order to fill these? How do you think about that when you think about valuations?

Meghan Shue: You know, when we think about valuations it’s essentially what you’re willing to pay for earnings. Inflation does factor into that in terms of the interest rate. I don’t think this is a near-term thing. So, in terms of the genesis of Tony’s original question, what could cause a sharp reversal, you know, in the next month or few months, I don’t think inflation is one of those. But that is one of the things that from a long-term perspective could have the impact of reducing the multiple that investors are willing to pay over the long term and have more of a, structural effect on the multiple.

And taxes is something that I don’t know exactly how to factor that in, but that is the risk as we look into, you know, November, and we get closer to the election. The other side of, you know, if a Democrat does get the White House, then we’re looking at a scenario where at some point—I wouldn’t say it’s in the near-term. Again, these are both kind of longer-term issues. But, I would think taxes are an impairment of earnings and the multiple. Those factor into both sides and we probably see a reversal of the bump of both of those that we saw in 2017. So, it’s a risk to be aware of.

Jonathan Golub: Yeah. And you can just look at the bump that we got of let’s say 10% or so in the market from the corporate tax rate reduction. That, that’s something that even if it didn’t get passed, if there is rhetoric in the direction that a Democrat in office would at least be assumed that they would reverse those Trump tax cuts, then the market may start to trade on that earlier.

Meghan Shue: It’s all about uncertainty, which is the irony of where the market’s trading today at basically, cycle-high valuations. If there’s less uncertainty around the volatility of earnings and some of the downside risks, then the market will be willing to pay a higher multiple on those, on that sort of future earnings. But, with greater uncertainty you’d expect that to come down and so that’s kind of the irony and the conundrum we find ourselves in today.

Tony Roth: Jonathan, when you look at the market right now, do you think the market is, given all the considerations as uncertain as many of them are, is fairly valued or—and do you think that the bottom is in?

Jonathan Golub: So, let me first answer the question you’re not asking and then I’ll get back to the ones you are, which is do I think that stocks will be higher in two or three years from now? Yes. Do I think the people who can stomach all of the uncertainty will ultimately get rewarded for sticking in and they have a multi-year view of the world? Yes. That’s the starting point.

Now, do I think that given what your upside/downside opportunity is over the next three, six, you know, months is that the market’s fairly valued? Absolutely not. Do I think that the market will fall? I don’t know if it tests new lows or goes down by 10% or what have you, but, you know, we have, at Credit Suisse, we have a 2,700 target on the market and the market right now is trading about 2,800. I, in my career, I’ve never had a situation where I have a market target for year-end that is below where it is. Stocks go up in general. But, what I think is most likely is that the—that ultimately stocks come down. The risk/reward becomes more balanced and then it’s probably a lot easier for you to recommend to your clients where you say, okay, yes, the market’s come down, but now there’s a 20% or 30% upside and it’s worth taking on the uncertainty because you’re getting paid for it. Right now, I think the problem is that there’s uncertainty. You’re just not going to get paid in the market the kind of excess returns that you would need to take on that downside risk. And so, I think it’s a kind of upside/downside risk balance that is out of whack right now.

Tony Roth: Yeah. I see it the same way. And one of the ways that we expressed this very similar view is clients often ask us, well, I have some cash; should I put it to work? And typically, we tell clients to put cash to work over 90 days, a third today, a third in 45 days, and a third in another 45 days. But markets tend to go up, so we don’t want to wait too long. We also don’t want, typically, all put it to work on one day. So, it’s a pretty short, compressed period of time.

Today, we’re telling clients to wait 6 to 12 months to put the money to work and to stage it out much more gradually over that period of time. And that reflects the same kind of both uncertainty, but also, I think, imbalance in the opportunities that where there seems to be a lot more downside than upside opportunity right now given where equities are priced.

So, Meghan, where are there opportunities in the market? And then, Jonathan, I’d like to ask you the same question, because we have a sort of bifurcated market where there are certain sectors that are actually performing really well, whether it be tech, whether it be staples, utilities. Then, there are sectors that are just getting crushed, obviously energy, but even financials, a lot of the value areas.

So, just talk to us, each of you real quickly if you could, about positioning. How would you put the portfolio together right now for a time horizon between now and the election?

Meghan Shue: Yeah. I’d love to jump in there. So, I think that we look at things across a number of different lenses. I’ll focus on two, one being factors, which is to say characteristics that stocks exhibit similar to kind of a style, or how you might characterize stocks broadly, and then at the industry level.

So, when we look at factors, we’re really looking to include in our portfolio high-quality companies. They’d held up relatively well in this market volatility. Companies that don’t carry a tremendous amount of debt, have a steady stream of earnings, that’s what we think of as kind of the high quality. And we also think that you need to have exposure to volatility-dampening stocks, things that we refer to as minimum volatility. And that can help ride through what we see and what you both very well described as what’s likely to be a bumpy road over the next few months.

Tony Roth: A lot of the qualities of companies that tend to be correlated with success right now are the same kind of qualities that correlate with ESG (environmental social governance) strength. So, companies that are well-managed, that have strong balance sheets, that are relatively low leveraged, good governance, all that kind of stuff, those are the—those happen to be the kind of companies that are doing well in this environment. And, in fact, you know, our ESG strategy, and a lot of them across the industry are actually outperforming right now for those reasons.

Meghan Shue: It’s a great point. And one other kind of thing to be looking at is where we are in the cycle. And typically, if you’re talking about at some point, even if it’s over the next year, kind of beginning this recovery process, bouncing off the bottom, that’s typically an environment where you would look for the cheapest stocks. Those value equities do really well.

And we’ve given it a lot of thought. We’ve had a lot of discussions and done a lot of work on whether this is the moment for value to do well. And I think it can do well. But, we’re also in this multi-year sectoral shift toward technology and a lot of those companies that are really benefiting from that shift are more growthier type of stocks. And you think of we think of growth as those stocks that generate their own organic growth. They don’t refer—they don’t rely on the economic cycle to generate that growth for them like a value stock would.

So, I think where we are finding ourselves is kind of at this crossroads now. At some point, we’re going to begin this recovery process, and we have to think about this environment a little bit differently. You know, we don’t want to necessarily bet all in value. We also don’t want to have no exposure to value. But I think this is an environment and a cycle where growth could kind of pick up where it left off and those bigger technology companies trading at more elevated valuations could continue to do well.

Jonathan Golub: And, you know, first of all, it’s a little disappointing, Meghan, that you and I, our views are lining up so much, because I’d love to have a little bit of a count—point/counterpoint and we’re kind of on the same page.

But, if I look at characteristics, and I think that that’s the starting point, characteristics are more important than sectors here. But, the characteristics to me are big, growthy, stable, and American. So, let me explain that. Larger companies have a substantially better opportunity to come out on the other side of this. They have greater access to capital markets if they need to borrow or raise capital. They tend to have more cash on their balance sheets. They tend to have the kind of professional management that allows them to navigate this most effectively and address things like supply chain problems in ways that smaller companies don’t necessarily have those opportunities. And we’re seeing that smaller caps are having a really hard time here where larger caps—and I’m not even talking about the very biggest, but the S&P compared to the Russell 2000, big caps are doing much better, number one.

Growthy: If you take a look at the broadly defined tech universe, it is substantially outperforming and it’s not because, you know, people are just enamored with the tech story. They’re just delivering much, much better earnings. Their earnings are proving to be really resilient. Now, it doesn’t mean every tech stock is equal. But, those that have growth that don’t need the economy, and you think about areas like software as—or cloud, those are just doing substantially better.

So, we have big; we have growthy. Stable: If we take a look at this earnings season and you look at cyclical sectors, cyclical companies, their earnings are likely to fall in the first quarter when all the results are in by about 50% versus a year ago and that is in a quarter where we only really had three weeks that we were staying at home. So, there’s a lot of vulnerability of more cyclical, cyclically exposed businesses. Those that are more stable, consumer staples, household brands, and health care companies, and utilities, and telcos, they are probably going to deliver a flat quarter. Now, zero may not sound wonderful, but compared to down 50, a big difference.

So, big, growthy, stable, and American is if you take a look at the kind of companies—forget about the fact that the American economy may be stronger and other things like that, but the companies that are in the S&P 500 tend to just have the characteristics you want. And so, there are fewer banks that are vulnerable to loan losses in the U.S. than there are in Europe. Europe is more exposed to the banking sector. The U.S. has less industrials; Europe has more. The U.S. has more technology; Europe has less.

So, from that perspective, and the U.S. companies actually tend to be larger. So, when you add those together and those, I think that that’s the way you play it, and that’s largely been the way that the market has played for the last three or four years. But I think it’s probably—it’s what’s going to get you through this crisis in the best way as well.

Tony Roth: Yeah. And Jonathan, we have a structural underweight to non-U.S. developed at a policy portfolio long-term allocation standpoint. We’ve had it for a long time. And what’s going on today, I think, even strengthens the need for that kind of view expressed in a portfolio. The strength around the innovation that we’re seeing in the U.S. and the argument that makes for just continuing to invest in U.S. stocks, I think, is very, very strong, even with the dollar as relatively strong as it is now.

That’s not to say we shouldn’t be diversified, because at some point we’ll pay the price for all the money that we’re spending, and the dollar may weaken and such. But, at least for the foreseeable future having a strong U.S. overweight I think is a very sound approach to investing.

Jonathan Golub: I think that there’s a couple things I just—I would add, because I really entirely agree with what you’re saying. The U.S. economy is the most whole economy in the world. We produce medicines. We produce new technologies. We have an enormous agricultural sector and export. Compare it to let’s say Japan, where they need to import food or where, you know, or other countries around the world that do certain things really well, but they don’t do everything.

And so, if we are in a world that comes under stress, the U.S. can be more self-reliant than anyone else and to the extent that we leave this, where globalization takes a step back, where if the—some of these issues between China and the rest of the world become more severe or continue, the U.S. would be less damaged by those. Europe is far more China-exposed than the U.S. is.

That’s not even considering the most important thing, which is all of the innovative technology or not all but the vast majority of it is happening here in the U.S., I think makes the U.S. compelling over the long run.

Tony Roth: I want to just summarize three key takeaways. I think that number one is that I think it’s critical to understand that as disconnected as the market seems to be from economic fundamentals, it is critical to sort of suspend belief here in fundamentals and understand that the Fed and the U.S. Congress has the back of the economy right now and that’s probably principally why the market is hanging in there the way that it is and that’s going to continue.

Number two is that even though we think that structurally we’re going to make it through this, largely because of the role the government’s played, that doesn’t mean we’re not going to continue to have a lot of volatility in markets. That doesn’t mean that we think equities for a six-to-nine-month time horizon are valued fairly. We think that they’re probably too expensive and we should expect to see some drawdowns as some bad news comes out and makes the market nervous that this reopening process won’t go as smoothly, whether it’s new cases, new waves, therapies that aren’t working, etcetera, etcetera.

And then lastly, I would say there are interesting trends that continue to shape how we invest around focusing on the companies that are doing well now but will continue to do well in the new normal, growth companies, large-cap companies, U.S. companies, in general, software, cloud, things of that nature. And that as investors, we need to continue to accept the possibility that even though by historic standards they may actually represent a larger market cap share than they have in the past or they continue to do well, that those trends could actually continue and not necessarily expect a mean reversion the way we have in the past in all of these particular situations.

So, a special thanks again to both Jonathan and Meghan for joining us today, as well as our listeners. Thank you, guys, so much.

Jonathan Golub: Great. Happy to do it.

Meghan Shue: Thanks for having me.

Jonathan Golub: This is fun.

Tony Roth: And I also wanted to ask everybody that’s listening that you can always send any suggestions or feedback, including ideas for future topics for podcasts to wealthwise@wilmingtontrust.com. And finally, I encourage everybody to go to wilmingtontrust.com for a roundup of our blog posts and media content relating to coronavirus, from a market, economic, and global health perspective. Thank you all so much. Bye.

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