Taking Inventory of the Recovery

North American markets today, Monday, surveyed several hours before the 9:30 a.m. EST opening, appear poised for a mixed start with the DOW in positive territory but with the S&P 500 and NASDAQ in the red. However, at time of writing both are improving and it is possible – though certainly not a given – that they could edge into the green during the morning. (These indicators can shift back and forth before, during and after market opening.)

The safe havens of gold and silver are positive at time of writing. Major currencies such as the Canadian dollar, Euro and British pound are up. In fact, the pound appears to be strengthening, according to Jeremy Thomson-Cook, Chief Economist at London-based business payments firm Equals Money. “The dichotomy of rising COVID-19 cases globally but a UK that is enjoying reopened bars, restaurants and shops should continue to work in the pound’s favor should the vaccination program continue to progress,” he says, adding that this outlook also requires a continued low hospitalization rate and effective border controls.

Meanwhile the US$ is starting the week lower with a question mark overhanging it. “Wednesday is probably the big day with a Fed meeting and President Biden’s first address to a joint session of Congress,” Thomson-Cook explains. “If Biden heightens the rhetoric or expounds on his tax plans, we could be in a for a volatile day on Thursday with the USD likely losing ground as investors shift money overseas.”

Meanwhile European markets are open at time of writing and very mixed. The FTSE100 and DAX are in the red but are improving.

All of this follows Friday’s closing at near record highs driven by hopes of a faster recovery.

Still, the picture can be confusing. We have the latest COVID 19 numbers from the Johns Hopkins Corona Virus Resource Center constantly showing up on television screens, counterpointed with a confusing array of tightened and loosened regulations, travel restrictions between countries and even, in the case of Canada, within the country.

Meanwhile, we are nervously finding our way through an economic recovery, taking encouragement from indicators such as recent earnings reports from major banks.  J. P. Morgan says that ”Even as some indicators continue to play catch-up, the economy at large is roaring back.”

While some may not yet feel the effect of ‘the roaring back’ the cataclysmic impact of the pandemic means that we all have to look over our financial horizon and take a hard look at the wealth picture in order to move on.

So, for the proverbial $64,000 question: where does all of this leave an individual’s investments and financial health?

The question has a number of answers and I can only deal with some of them here. Generally, these answers are best discussed with a licensed professional advisor thoroughly familiar with the individual’s financial picture, risk tolerance, financial needs and lifestyle plans. It’s not just the financial facts, it’s the individual’s situation that must be considered.

The retirement plan may need revisiting, re-examination and perhaps even some re-construction. Some who found themselves suddenly furloughed or fired may have had to dip into retirement savings to pay living expenses. Where they returned to their employers or found new employment it’s worth studying whether the withdrawals can be replaced or whether retirement expectations have to be downsized.

Where returning to traditional employment is not an available option and the individual joins the gig economy or settles into early retirement, benefits formerly paid by an employer may have to be arranged independently.

Moreover, brand new membership in the gig economy means that a new retirement plan or plans will have to be set up as the employer pension plan (where it exists) has been truncated and won’t provide the necessary payments in retirement. To the extent possible, funds deposited in this plan or plans need to be left inviolate until retirement.

As the smoke clears it might be appropriate to take a hard look at some of the holdings and divide the depressed equities into two categories.

‘Fallen angels’ refers to equities that have been beaten down but for which recovery seems promising. The drop may have been triggered by a disappointing quarterly report or a failed acquisition bid or other event that caused a loss of confidence.

At M&R Capital in Summit New Jersey, Executive Vice President Paul DeSsisto includes Salesforce.com, EOG Resources and Splunk in this category. At the same time, the portfolio may contain some holdings that have little chance of recovering and are best liquidated. That is another prime example of the need for a serious conversation with a licensed financial advisor.

Consider whether the portfolio has sufficient representation of recovery stocks, another strategy best discussed with a financial advisor also familiar with established tolerance.

Recovery stocks are those poised to perform strongly as the recovery takes hold.

(I am not specifically recommending these stocks, just noting their status as valid recovery stocks.)

Coca Cola Co. is a quirky example. The same factors that penalized the company during the pandemic such as reduced sales to bars, restaurants and events will boost sales in the recovery as consumers head out to these establishments.

To a point, airlines are another example of companies that took a hit during the pandemic but stand to gain during the recovery. Goldman Sachs says that they will see an increase in demand during the second half of the year.

Companies supplying software for online and real-time gambling merit at least a second look as various governments, wary of huge tax increases, look to online gambling to help pay the pandemic bills. There are over a dozen such companies but investing in them is not for the weak of heart and requires a long hard look at the individual’s risk tolerance.

Related: Several Iconic Names Report This Week

Disclosure: I am not a financial advisor looking to recruit new clients though I can appreciate that impression may be created. As a journalist I have interviewed over 300 licensed advisors in several countries and believe that the shift from pandemic to recovery and beyond is going to point up the importance of the relationship between advisor and client.