The Market Flies Anyways
According to all known laws of aviation, there is no way a bee should be able to fly. Its wings are too small to get its fat little body off the ground. The bee, of course, flies anyway because bees don’t care what humans think is impossible.
- Bee Movie, 2007
To some, it seems impossible that the stock market (S&P500) has buzzed nearly 30% higher in the last 4 weeks – the same period of time that over 5 million Canadians have filed for federal emergency help. But what exactly is the stock market and what keeps it off the ground?
If the stock market was an onion and we peeled one layer, we would come to a collection of sectors; financials, energy, industrials, healthcare and technology, to name a few. Each sector representing a fraction of the overall market. Technology and healthcare, as an example, constitute roughly 40% of the market, and have retracted nearly all of the COVID induced loses. Energy and industrials represent just more than 10% of the market and are still suffering. A layer below the sectors are industry groups and layers beneath that are individual companies – some at 52 week highs and others in tears.
Dollar General, Walmart and General Mills are doing well as we eat from our pantries rather than at the fast food chains owned by Restaurant Brands. Abbot Labs is about ready to roll out a diagnostics test kit with a 5-minute result time to the general population. Those already with the virus are being offered antiviral medicine in a clinical trial from Gilead and are seeing rapid recoveries in fever and respiratory symptoms. Our household favourite, Netflix, is scheduled to report quarterly earnings next Tuesday and is expected to add another 7 million users to its already 167 million user base.
This is where active investment management comes in – to find safety in the obvious survivors, but also look past them to the non-obvious survivors still deeply discounted. Now, more than ever, it is important to scrutinize the businesses that we have an ownership stake in and separate the winners from the losers.
We might not be fully employed like our pollinating friends in black and yellow, but we too can be busy bees in our gardens and around the house. Stay healthy, stay safe, stay six feet apart and go wash your hands.