What Are We Missing?

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Part of our work as advisors is to constantly question our assumptions, biases, and beliefs. Beyond the first principals of investing that are clearly grounded in our practice, we form views around macroeconomic outcomes.


Simply stated, our current views are:

Economic vitality will return in the coming year [i]

1 Goldman GDP Forecast (Goldman).png


Consumption will return to pre-COVID-19 levels, albeit in different areas of priority. [ii]

2 PCE Returns to pre-COVID (Fred).png


The U.S. savings rate will be spent down back to pre-pandemic levels, adding approximately $3 trillion to the U.S. economy. [iii]

3 Personal Savings Rate (Fred).png


U.S. employment will recover at least 90% of prior peak levels by Q4 2020. [iv]

4 Employment Levels (Fred).png


Corporate earnings will resume growth on a year-over-year basis beginning in Q1 2021. [v]

5 S&P 500 Expected Earnings Growth (FactSet).png


Inflation in the short-term and intermediate-term will remain close to nonexistent. [vi]

6 Inflation Near Zero (Fred).png


The Federal Reserve will inflate their balance sheet to fight deflationary pressures at any cost. [vii]

7 Fed Balance Sheet.png


U.S. fiscal policy will add another $1 trillion to our economic output in some fashion (state and local government transfer payments, extended unemployment benefits, payroll tax cuts, medical subsidies, etc.) [i]

8 Federal Spending in Response to COVID (Goldman).png


Trump will push to spike the economic punchbowl with more juice to hold the economy together through November’s election—he knows a bad stock market historically equals an 86% chance of him losing. [viii]

9 S&P 500 and Election (Bespoke).png


A weaker U.S. dollar will fuel export growth. [ix]

10 Weak USD (Oxford Economics).png


Here’s what we might be missing:

The S&P 500 has already rallied 38% off the March lows, making up about 70% of the losses incurred. [x]

11 S&P 500 Since March Lows (StockCharts).png


Investors are anticipating a quicker recovery in earnings growth than what we are expecting. [i]

12 S&P 500 EPS (Goldman).png


A potential second wave of COVID-19 could force another national shutdown and a second massive collapse in corporate revenue and earnings. [xi]

13 COVID-19 Potential Second Wave (CIDRAP).png


Inflation in the short-term and intermediate-term may spike based upon the congressional authorization of new debt (some call this printing money). [xii]

14 U.S. Inflation Expectations.png


There is no next round of stimulus or relief to state and local governments, forcing mass layoffs. [xiii]

15 Government Spending After Recessions.gif


Consumers hoard their savings and crimp U.S. consumption. [xiv]

16 Savings Rate & PCE (Fred).png


The U.S. dollar spikes higher, creating a drag on U.S. exports and manufacturing jobs. [xv]

17 US Dollar & Exports.png


While we are aware of what drives our views and what we believe will not occur, there is room for doubt as we know anything can happen when forecasting, and usually does.

For that reason, we turn to our core principals of investing: (See our presentation on those here)

Markets move in brief bursts and if you miss just a few days, you lose almost all of the advantage. [xvi]

18 Markets Move in Brief Bursts (PhCo).png

Time shapes risk and holding your assets over longer periods of time can minimize the downside. [xvi]

Your plan should dictate your needed rates of return and you should match your portfolio to that rate of return—assuming you believe, like we do, that there is always a trade-off between risk and return.

Rebalancing your portfolio to your target return and plan is of utmost importance.

Share with us what you think we are missing. We are always better when we think as broadly as possible. You can email me using the link below.

If you have questions or comments, please let us know. You can contact us via Twitter and Facebook, or you can e-mail Tim directly. For additional information, please visit our website.


Tim Phillips, CEO, Phillips & Company


i.       https://research.gs.com/
ii.      https://fred.stlouisfed.org/series/PCE
iii.     https://fred.stlouisfed.org/series/PSAVERT
iv.      https://fred.stlouisfed.org/series/CE16OV
v.       https://www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_061220.pdf
vi.      https://fred.stlouisfed.org/series/CPIAUCSL
vii.     https://www.visualcapitalist.com/the-feds-balance-sheet-the-other-exponential-curve/
viii.    https://www.bespokepremium.com/
ix.      https://www.marketwatch.com/story/why-us-dollar-bears-could-be-thwarted-in-2020-2019-12-31
x.       https://stockcharts.com/h-sc/ui
xi.      https://stockcharts.com/h-sc/ui
xii.     https://www.bloomberg.com/quote/CPI%20YOY:IND
xiii.    https://www.motherjones.com/kevin-drum/2020/06/stimulus-we-desperately-need-it-for-state-and-local-governments/
xiv.     https://fred.stlouisfed.org/series/PSAVERT#0
xv.      https://fred.stlouisfed.org/series/PSAVERT#0
xvi.    https://phillipsandco.com/files/4715/8395/6151/The_5_Basic_Rules_Equity_Investors_Need_to_Know_-_20200311.pdf