Hi everyone,

Hope you all are doing great! 

Many of you have already filled out the survey, and I can't thank you enough for that. For those that may have missed the email housing the survey from SurveyMonkey, it will be sent out again today (it will be released from the email davnet@compliance-risk.com via SurveyMonkey). Please do fill it out. Your views mean the world to us, as we seek to develop a new business to serve you the best way that we can. Thank you so much.

This week is setting up to be yet another volatile week of trading, but nothing too surprising. We've talked extensively about outsize levels of volatility in the book Value Trap, and many of our predictions regarding the magnitude of volatility have come to fruition, as described in this note here. But as we've also noted in Value Trap, we don't think increased volatility is a transient development. The Fed and Treasury have only further emboldened price-agnostic trading (indexing/quant) with recent bailout actions, and volatility and momentum funds, which exacerbate the swings, will only grow as a percentage of trading volumes.

The magnitude of market volatility during the COVID-19 crisis has certainly been immense. During March for example, the Dow Jones Industrial Average had 8 consecutive days with a 4% move in either direction (this is the first time in history this happened--not even during the tumultuous times of the Crash of 1929 or Black Monday of 1987 or the Great Financial Crisis did this happen). Intra-day volatility has also been considerable, and it has become commonplace for equity futures to swing wildly before market open. Now, more than ever, investors need a steady hand at the wheel.

As we move forward from the depths of COVID-19, the narrative is now shifting to concerns about a second wave of infections. We don't think this is new. We've been talking about the near-certainty of a second wave for months, but we don't think government officials will shut down the economy again, and we expect any potential economic shortfalls to be offset by Fed/Treasury actions. Further, health professionals know a lot more about COVID-19 today than they did in February/March, and the number of shots on goal for a vaccine is incredible. 

We continue to focus on the long term when it comes to idea generation, but we also think the "put option" hedge that we added to the newsletter portfolios will come in handy as the markets whipsaw around in the coming weeks due mostly to profit taking but also as a result of many traders taking some high-beta, recovery bets off the table. I don't think anyone was expecting COVID-19 to go away by June, nor do I think anyone was expecting COVID-19 infections to decline as a result of the U.S. economy re-opening. 

We'll keep monitoring the data, but as of now, the sell-off during the past few trading sessions speaks more of profit taking after a huge bull market run than any change in the long term outlook for equities. We're available for any questions. Keep the seat belts on!