The equity markets may have bottomed in late March after dropping more than 30% in just a few weeks. Since then, in a little more than a month, stock prices have rallied, recovering a substantial chunk of the damage done. So now what?

My dad would have turned 100 years old yesterday, and one of his greatest gifts to me was the ability to take a step back and look beyond short-term emotions. Good decisions are always based on a clear understanding of the big picture, and the answer to “now what?” lies in his wisdom.

There are some obvious beneficiaries of a return to normalcy in our economy. The most glaring will be oil. Despite all of the claims to the contrary and the scare tactics employed by the short sellers, the big picture suggests that the demand for oil will return once the world economy gets rolling again. Economic growth in the US and the rest of the world will not only recover, it will accelerate because of the stimulus packages that were hastily implemented to prevent the collapse of the world economy. Supply and demand still determines price, and oil will rise once the growth engine roars back to life.

Another beneficiary of economic recovery will be domestic manufacturing. The pandemic and required response have shown us the peril of being overly reliant on foreign manufacturing capabilities. American companies have been importing products from China for decades in an effort to take advantage of cheaper labor and material, and the consequences have become painfully obvious. The disruption of our supply chains has caused far greater damage to the economy than might have been the case if the products we rely on had been produced here. During the 1970’s and 1980’s, we learned a painful lesson from our dependence on foreign oil, and the result is our current energy independence. I expect a similar result for “Smokestack America” and perhaps a new Industrial Revolution in the USA.

So what does all this mean? Over the near term, it’s hard to say what’s next. It all depends on the virus and the treatments. The longer term offers real opportunity. Companies with strong balance sheets will survive the crisis, and the big oil companies will benefit from a smaller pool of competitors. On the manufacturing side, stable domestic producers  will profit from a renewed “buy American” emphasis. The sleepy old giants capable of ramping up domestic production will likely be the biggest winners. We are actively positioning client portfolios in the companies that we anticipate will benefit most as the economy recovers. Your advisor can help you determine whats best for you. Let us know if we can help!

Stay focused, stay safe and stay the course.

Joseph C. Paul
Chief Investment Officer