In January, at a regular weekly assembly of the Gregory Clan leadership team, in a secret lanai somewhere in Florida, a discussion was held about the state of the stock market. The topic of the day was what event could derail the incredible performance of the stock market, and should we do something about it? The gathering consists of my son, my son-in-law, and myself, along with the essential ingredients of fine bourbon and equally fine cigars.
We collectively determined that the market had an amazingly long bull run, and it was perhaps time to take some chips off the table. We remained cautiously optimistic about the future outlook because the market had such positive momentum and felt the only thing that could derail the economy would be a significant black swan event. What event we speculated, would have such catastrophic consequences to upend our economy? We hypothesized that only something like if one of the bad actors in the world launched a nuclear attack on another country. Any number of terrorist events could cause a disruption. What if there was an assassination of a world leader? None of our speculations guessed that such a black swan event was imminent and that it would wreck economies and impact every single person in the world. Such is the unpredictable nature of black swan events.
Now that we are well into the event (I’m writing this on March 25, 2020) with the stock market has had its highest increase since 1933, which followed the steepest sell-off ever, what comes next? With bars and restaurants closed, with families shut in behind closed doors, with hospitals expanding capacity, with the president declaring war powers against the coronavirus, with all of these things in play, what comes next?
I think the scare will be with us for a spell. I believe some habits have permanently changed for the better. Washing hands is now understood to be the first line of defense against all viruses. Shaking of hands, which dates back to ancient warriors showing that they are not holding a sword, will be replaced with a polite nod. Maybe the tipping of your cap will come back in style?
As for the stock market, I believe the most reliable blue-chip stocks will come roaring back.
In my experience of utilizing the CoreBrand Index® research database of corporate brands, the ones that have the most significant Familiarity and Favorability going into a crisis will rebound fastest after the crisis is over. The weakest brands will take longer to recover and often don’t rally to their previous stature. The most reliable companies are the ones with most solid brands that people can trust, and their existence required in these troubled times. I predict that the weakest brands will collapse and disappear quickly. One of the problems of a long bull market is that it can support many losing companies with false hope. This stock market meltdown will shake out the losers quickly.
A critical lesson from this black swan event is that there is a risk of buying vital goods from countries that are not friendly to us. There will be a new demand for American companies to source from the United States or reliable allies.
The overall stock market will come back quickly because the economic fundamentals in the U.S. are healthy. Silicon Valley and blue-chip stocks will be at the forefront of the recovery. Life will get back to more-or-less normalcy in weeks, not months. How the coronavirus will impact the rest of the world depends on how each government responds to the threat. Some will rebound quickly and efficiently. Others will suffer significant hardships.
The black swan laid an egg that could have hatched into a worldwide meltdown, but so far, the world has handled the event about as well as could be expected. I’m hopeful that by summer, this will just have been a bad dream and that the egg doesn’t hatch.
NOTE: The CoreBrand Index® market research database is the property of Tenet Partners, New York, NY.
