On Again, Off Again
In case we needed a reminder of just how unpredictable the markets can be, this week the Dow Jones Industrial Average finished almost 1,000 points higher. Had you asked me on Monday what this week would look like, I’d have been cautiously optimistic. However, given the heightened level of uncertainty due to this stubborn pandemic, I could not have guessed how far the markets would run. It just goes to show that in the short-term, the markets can and often will act irrationally especially in the face of uncertainty. This is a lesson we should all take to heart in the coming weeks.
Perhaps the impetus for the big move this week was the on again, off again nature of the stimulus negotiations. The week started with a tweet demanding an end to negotiations, to a re-start of negotiations, to President Trump wanting a deal larger than that sought by the Democrats $2.2 trillion plan. However, like a Shakespearean play, we have Senate leader Mitch McConnell hiding in the wings, saying a deal will not be brought to the floor of the Senate before the election. How this plays out is anyone’s guess. All I can say is that investors are eager for a deal to be reached so that further stimulus can be pumped into the economy. If I didn’t know better, I’d think we’ve become a bit addicted to stimulus. While I’m not arguing with the short-term results, which undeniably would drive markets higher, I remain concerned about the long-term consequences.
The good news is that based on the president’s seemingly quick recovery, it appears doctors have a pretty good handle on how to treat COVID-19 these days. Whether it is Gilead’s remdesivir or Regeneron’s monoclonal antibody therapy, or a cocktail of all of the above including dexamethasone, the prognosis for those who contract the virus now appears to be much better than in the early days. While we are still a few months away from the release of a vaccine, and while that vaccine will almost certainly be rolled out in phases over the coming year, I can confidently say we are that much closer to putting this pandemic behind us. I am sure we can all agree that this is a milestone we’ve been waiting for.
In other news, the House antitrust subcommittee release a report this week which contains a thinly veiled call to break up the largest technology companies. While you might think that this is the work of one party, it is not. This 450-page bipartisan report really does have the likes of Facebook, Amazon, Apple, and Google in its sights. Both Democrats and Republicans on the committee share concerns about the companies’ power including squashing rivals through acquisitions and guiding customers to their own products. At this point, it is unclear if the recommendation will include breaking up these companies, or simply denying future mergers and acquisitions. This is something that will likely play out next year and whose results could hinge on the outcome of the upcoming election.
In closing, I turn to the airline industry to demonstrate how different approaches could lead to very different outcomes. While airlines such as United and American are on the verge of laying off tens of thousands of employees and demanding concessions due to the downturn in travel, there is one airline that sees opportunities and is acting now. Southwest Airlines announced this week it is launching new service from Phoenix to Los Cabos and Puerto Vallarta Mexico. Additionally, it is expanding service from Phoenix to Palm Springs in November and Dallas to Montrose and Steamboat Springs Colorado beginning December. It seems management believes there are travelers who want to go south to vacation and north to ski. I guess what I’m getting at is, we can look at the glass as being half full or half empty. It seems Southwest Airlines, unlike some of its peers, is taking the glass half full approach. Now you know.
Bruce J. Mason, MBA