On the surface things seem calm enough. The stock market certainly is showing signs of, if not calmness, at least of stabilization. We have come a long way from the initial stock market reaction to the pandemic and its economic consequences. The period March 9-13, the average daily move in the S&P 500 up or down was 6.6%. That is volatility. Last week, May 4-8, the average move was 1% in either direction. The markets are steadier. And they have recovered significantly from their market lows. At one point the S&P 500 was down 31% year to date; as of today, it is down 8%. That falls in the range of a modest correction. But our lives and livelihoods are sustaining anything but a modest disruption. The economic situation still seems tough and the path to recovery uncertain. So what gives? How can the markets go up like that when the economic news is so bad? The stock market is not the economy. This mantra is heard far and wide these days. And it is true. Earlier in this crisis we talked about policy makers, regulators and Congress working to create a bridge to the other side of the pandemic. The Fed pulled out all the stops; the Congress put together costly programs to shore up the consumer and small businesses. News being what it is, what we hear about are the stories of failure—the checks not received, unemployment systems ill-prepared and ill-designed for the task, money for small businesses going to large national corporations. All those are true and deeply unfortunate. But a lot of money is being injected into the economy and it is serving as a stopgap for individuals and small businesses until business resumes however it resumes. We will work through many of the institutional barriers. We will find ways to open businesses safely even if there will likely be some rough spots along the way. The bridge is there. It may occasionally be flooded. It may require a few extensions. But the will is there. So if the market is not about the current economy what is it about? As always it is about the future. The market is about what will be, not as much about what is. The value of a stock is the current estimate of the value of its future earnings and cash flows. Equity buyers are paying for cash flow and earnings over the next thirty years, not the next twelve months. Even if earnings go to zero over the next year, that only represents a small percentage (4-5%) of the total value of the firm, assuming cash flows return to prior levels. It may take longer but we will recover. Signs of improvement are small but steady. The number of new cases per day is declining. People are inching out of their confinement. More miles are being driven. More meals are being eaten away from home. Restrictions on movement and business are being loosened even in states with relatively strong stay-at-home rules. We will continue to get reports like the restaurant in Colorado that opened on Mother’s Day in violation of local rules and without any provision for social distancing. But more businesses are working hard to figure out how they can open with strong safety measures for their customers and employees. Amazon is working on rolling out testing for all its employees. And they have the wherewithal to make it happen. Ingenuity is out in force from doctors finding new ways to treat patients to businesses redesigning their workplaces to encourage social distancing. Those small but steady movements toward recovery point to a return not to our old normal but to a place better and stronger than today on the other side of the bridge. Today’s Quote: “We have this history of impossible solutions to insoluble problems.”― Will Eisner Please do give me a call if you have comments or questions. I look forward to hearing from you.