Talk to us.

Rationality is returning to financial markets.

Ken Freeman, April 14, 2020

Chicken Little proven wrong again. The sky isn’t falling after all.

Please don’t take the whimsical headline the wrong way. We don’t mean to minimize COVID-19. It is very serious, requiring diligent caution and aggressive action on both the healthcare and economic fronts. We are fully expecting its likelihood to persist and linger for a while.

However, latest developments suggest strongly that the sky is in fact not falling and that rationality is actually returning to the public equity market… though we admittedly don’t know yet what the “New Normal” will look like. After plunging 38% in less than two months, the Dow has since recovered much of that plunge.

Let’s face it, as the stock market peaked in mid-February, many of us thought it was overheated and just looking for a reason to correct. Unfortunately, COVID-19 is more than that. It’s not just a market correction. It reflects real economic hurt for too many Americans and considerable uncertainties for all of us. So the meaningful decline from the recent
peak seems rational.

We are not saying there won’t be further waves of bad news and further sharp market drops. There may be further short-term drops, for example, as quarterly profit numbers are reported and companies refuse to project subsequent near-term profits in light of all the uncertainties.

At least for now, we are not seeing market declines like the 50%+ drop experienced in 2008-09 or the 80% plunge during the great Depression. Yes, the pandemic is very serious, but investors recognize the value of America’s economy and major corporations looking ahead, as the market should be doing. After a sharp emotional (and program trade-driven) plunge, the market has recovered a meaningful portion of the early losses. As reports of success in flattening the COVID-19 curve emerge, the return of early losses. As reports of success in flattening the COVID-19 curve emerge, the return of rationality in financial markets seems to be prevailing.

Venture capital is about the future.

While some ventures may be squeezed at just the wrong time and fail, it seems clear that innovation will remain key to long-term economic growth, probably more so now than ever. VCapital’s focus on breakthroughs in healthcare and efficiency-enhancing information technology seems spot-on… again, probably more now than ever. The current crisis will undoubtedly spawn new opportunities in these areas as well.

We are available by phone or email to continue this conversation.
Talk to us.