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Does Anything About This Feel Normal To You?                                                  Join our Monthly Newsletter                June 2020                                                                                              

Mark R. Hoffman

CEO, Principal

On Friday morning (6/5/20), I was putting the finishing touches on this monthly article when the jobs report hit. Consensus estimates were that the unemployment rate would close in on an astounding 20% with another large wave of layoffs. Instead, the US added 2.5 million jobs and the official unemployment rate stood at 13.3%. What? The equity markets raced to the upside once again and I hit the delete button on my now obsolete analysis of where we stand.

After the fastest drop in stock market history due to the COVID outbreak and subsequent economic shutdown, we are now within spitting distance of flat for the year. Market cycles are normal. Corrections are normal (since 1980, there have been thirty-seven 10%+ corrections in the stock market). But does anything about this feel normal to you? We were told in late March that this one was different. But since then, the stock markets have told us that maybe it’s not.

Before everyone declares that the bull market is back and that we should be long everything, can we at a minimum acknowledge that the stock market and company profits are saying two different things? At the end of May, here is where that stood:


The chart above represents the change in the S&P earnings per share vs. the change in the S&P price. Talk about a disconnect. Additionally, at the end of May, the forward 12-month P/E multiple stood at 21.5. The five-year average is 16.8 and the ten-year average is 15.1. The last time the P/E was over 21 was in January of 2002. If the stock market is supposed to be a reflection of the underlying earnings of the companies it represents, something is off.

So, maybe the market is saying near-term earnings don’t matter. The only thing that matters is reopening the economy. Happily, the economy is reopening and we should applaud that. But there are broad swaths of the economy that have such a long way to go it’s hard to think that things are back to normal. CNBC publishes a series of charts (“Five charts that track the U.S. economy amid reopening progress”) that measures how significant the rebound has been. Here are three of the five. Restaurant bookings are down ~75% vs. last year. Hotel occupancy is below 40% (the ten-year average in the month of June is in the high 60’s). And U.S. air travel is still down 80%+ year-over-year.


At times like this, I ask “what would I have to believe…?” What would I have to believe to think that we are in a normal economic cycle and that we can pick right back up where we left off before COVID hit? I think I’d have to believe some combination of the following:

  • That the worst of the actual COVID virus is behind us, that someone creates an effective vaccine – and that everyone takes it
  • That our economy reopens in full and does not shut back down
  • That everyone that was laid off goes back to work at full capacity
  • That the $2.4 trillion (and climbing) the federal government has spent to fight COVID can be easily absorbed without compromising our ability to grow
  • That the debt that companies have taken on to get through this crisis can be easily paid down
  • Etc., etc., etc.

I don’t think any of those are a given. Not one. I hope I’m wrong, but this doesn’t feel normal to me.



Mark is a co-founder of Lanier Asset Management and serves as its Chief Executive Officer. Prior to founding Lanier, he was a partner at The Boston Consulting Group. Mark is an honors graduate of The University of North Carolina at Chapel Hill with a BA in Economics, and holds an MBA from The Harvard Business School.

May 2020: Can the Rebound Last?

April 2020: The Big Bear of Q1 2020

March 2020:  Where's the Bottom?

March 2020: A Perspective on Crises

March 2020: Is there Any Good News Out There?

February 2020: Is Diversification Dead?

January 2020: The Roaring (or Boring?) 20's Are Here!

December 2019: Providing 'Alpha,' The Holy Grail of Investing

November 2019: The Search for Yield: Chapter 2

October 2019: Given the Current Rate Environment, How Has the Search for Yield Changed?

September 2019: What is the State of your State?

August 2019: Volatility is back, but is it the end of the world?

July 2019: Is This the Year 2000 All Over Again?

June 2019: Concerns of an Economic Slowdown?

May 2019: Benefits of Hedge Fund Investing

April 2019: Yet Another Burden On The US Economy

March 2019: Capitalism vs. Socialism: The Debate is Alive and Well

February 2019: What Are the Most Important Factors for Investing in a 401k Plan?

January 2019: A Look Back and a Look Ahead

December 2018: The Inverted Yield Curve - In Layman's Terms

November 2018: A False Sense of Security

October 2018: Reflections From Over Four Decades

September 2018: A Decade of Assisted Recovery

August 2018: The Entitlements Train Wreck - Possible Solutions?

July 2018: Is Wage Growth In This Country Improving Over Time?

June 2018: The Impact of Corporate Tax Reform

May 2018: Kentucky Derby Talks - Bulls vs. Bears

April 2018: How Much Longer Can Interest Rates Stay So Low?

March 2018: Policies For Economic Growth

February 2018: Volatility

January 2018: So What's In Store For 2018?

December 2017: Tax Cuts and Jobs Act: Good or Bad for Me? It Depends.

November 2017: Whack-A-Mole - D.C. Style

October 2017: Should You Consider a Robo-Advisor?

September 2017: Alternative Investments - What and Why?

August 2017: The QT Quandary

July 2017: Quality of Life Influencers (Cont'd)

June 2017: Quality of Life Influencers

May 2017: Repatriation Myths and Realities

April 2017: Time to Invest in International Equities?  Let's Take a Look...

March 2017: Valuation - A History Lesson

February 2017: The Prince of Darkness

January 2017: Mountains of Debt - Does it Matter Anymore?

December 2016: Trumponomics: Reagonomics' Twin?

November 2016: Found Money

October 2016: Marrying Theory and Practice

September 2016: Do You Have a Sharpe Portfolio?

August 2016: Be Careful of High Dividend Stock Strategies

July 2016: "Die Younger" is Not a Strategy

June 2016: Blame Tina

May 2016: Would You Rather:  Tax Cut or Tax Increase?

April 2016: Father Time Demands Your Attention

March 2016: What Has the Last Year Taught Us?

February 2016: Winners and Losers of the Oil Battle

January 2016: Diversification Improves Returns and Lowers Risk

December 2015: Synergy and the Art of Building High Performance Portfolios

November 2015: Take Control...or the Government Will For You

October 2015: A Note from Our Dean of Business

September 2015: Double Espresso at Midnight

August 2015: An Allocation to Hedge Funds - Essential!

July 2015: Another Greek Tragedy?

June 2015: What Does Financial Planning Mean To You?

May 2015: The Active vs. Passive Battle

April 2015: Out on an Island – Preparing for the Fed Rate Hikes

March 2015: To Fee or Not to Fee?

February 2015: European Central Bank Tries QE – Will it Work?

January 2015: 2014 Recap