Market Update June 8, 2020 – The S&P 500 is Recovering. Now What?

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Market Update June 8, 2020 – The S&P 500 is Recovering. Now What?

As the NASDAQ hit a new record high and the S&P 500 turned positive for the year, many market experts have been pondering the historic run since the pullback in Q1 2020, and their thoughts seem to share the same theme this market rally feels more like a bubble than a true reflection of the current economic and corporate climate.

A Booming Stock Market Could Come Back to Bite the Recovery – Sarah Ponczek of Bloomberg Businessweek, June 6, 2020

Stock Market Bullish Sentiment: Is It Extreme Yet? – John Navin of Forbes, June 7, 2020

A Striking Disconnect on the Virus: Economic Pain with Little Illness – Michael H. Keller, Steve Eder, and Karl Russell of The New York Times, June 6, 2020

Are Memories of 2009 Adding Fuel to the Market Fire? – Jon Sindreau of The Wall Street Journal, June 5, 2020

Historically, there has been a fairly clear correlation between EPS estimates and stock prices. However, during this recovery stock prices are ricocheting higher while EPS estimates continue to point to a downward trajectory.

This dispersion is significantly different from the interaction of these two data points in 2008, when flat to slightly upward trending EPS estimates coincided with the recovery of market prices.

With the S&P 500 posting its sharpest 50-day rally in nearly a century, investors and wealth management professionals are faced with a dilemma. They can continue to ignore the warning signals that seem to be blaring from every major news venue, telling them to take a closer look at their allocations and manager selection, or they can use this recovery as an opportunity to prepare for the next round of volatility most believe will inevitably occur.

As most portfolios have likely nearly recovered from the downturn in March and traditional stock and bond allocations come under pressure amid the continuing fallout from COVID-19, now is the time to put a plan in place for downside protection. As demonstrated by their ability to successfully weather the downside of the Great Recession and again in Q1 2020, hedged equity strategies serve as a critical part of this plan. Specifically, an allocation to a long/short equity strategy can help mitigate portfolio risk by addressing market volatility, and with the downside protection potential it provides, investors may be more likely to stay in the market and avoid missing out on gains as the market recovers.

Waycross Partners was founded more than 15 years ago specifically to manage long/short equity as its flagship strategy. Our investment team has significant experience actively hedging through a variety of market environments including extreme volatility, recessions and recoveries. If you believe your portfolio can benefit from our experience, please contact us to learn more.   

Waycross Partners, LLC (“Waycross”) is an independent, privately owned investment management firm registered with its principle place of business in Louisville, Kentucky. Waycross offers investment strategies to our clients, which are made up of institutional and high net worth individuals. This material is for informational purposes only and is neither an offer nor solicitation to invest. Please read all offering memorandum, ADVs, and other risk disclosures before investing. Any projections, market outlooks or estimates in this document are forward looking statements and are based upon certain assumptions. Other events which were not taken into account may occur and may significantly affect the returns or performance . Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. The enclosed material is confidential and not to be reproduced or redistributed in whole or in part without the prior written consent of Waycross Partners. The information in this material is only current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Any statements of opinion constitute only Waycross Partners’ current opinions, which are subject to change and which Waycross Partners does not undertake to update.

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