Posts filed under ‘International’

The Rocket Science of Investing – Armageddon Yet to Arrive

In the face of an incredibly scary global pandemic, the stock market completed a phenomenal year (S&P 500 rocketed +27%) closing at a new all-time monthly record high, after also posting incredible results in 2020 (+16%) and 2019 (+29%). Naturally, the follow-on question I get most is, “What about next year?” And to this question, I annoyingly provide the same answer as the most successful long-term investor of all-time, Warren Buffett, “I have no idea.”

But with that said, despite lacking the skill of 100% clairvoyance, my investment firm Sidoxia Capital Management and our strategies have performed quite well over the long-run for numerous reasons. As it turns out, the power of compounding, coupled with low-cost, tax-efficient investing can produce quite spectacular results. Throw in some good stock picking, and that is frosting on a cake recipe of success. Thank you Amazon.com Inc. +5,544%, Apple Inc. +2,394%, and Alphabet Inc. 880%, among many other fruitful investments since Sidoxia’s inception in 2008.

Lessons Learned Over 30 Years

I’ve been doing this thing called investing for about three decades now and I’ve learned a few things over the years, most prominently that investing is not rocket science. Warren Buffett has correctly described investing as similar to dieting. In other words, both are easy to understand but difficult to execute because they require discipline.

If you want your investments to succeed, consider some of these investing nuggets:

  • Invest for the Long-Run: Markets move in all directions, but if you can avoid myopia and short-termism, you will be much better positioned for investment success.
  • Avoid Investment Fads: Invest where you get the most bang for your buck – stick to sound investments selling at reasonable prices. Stay away from expensive, speculative, frothy areas, or at least keep that exposure of your portfolio to a minimum.
  • Turn off the TV and Silence your Phone: Regardless of what you hear, the world is not ending. COVID, inflation, and Federal Reserve monetary policies may dominate the headlines du jour but this is nothing new. The stock market has increased more than 7-fold in value since the 2009 stock market lows, even in the face of many frightening news stories (see Ed Yardeni’s list of panic attacks since 2009).
  • Understand Stock Prices Do Go Down: We have been spoiled in recent years with above-average returns, but that does not mean you need to panic when prices do decline or that you need to try to time the market. There can be years when stock prices do not appreciate (reference the post-2000 and post-2008 periods), however, those who wisely rebalanced and dollar-cost-averaged positions in their portfolio were handsomely rewarded for their discipline and patience over the long-run.
  • Volatility Can Be a Good Thing: Periods of volatility offer you the ability to rebalance your portfolio and take advantage of opportunities that disruption creates.
  • Optimize Your Investments Based on Your Time Horizon and Risk Tolerance: At Sidoxia, we customize investment portfolios to meet our clients’ unique circumstances and risk appetite. It’s important to have your investments diversified across a broad array of asset classes in a low-cost, tax efficient manner.
  • Get Assistance: If you don’t have the time, discipline, or interest to manage your investments, find an experienced professional who is a fiduciary (i.e., someone who legally places your interests first) and implements time-tested investment strategies. Sidoxia should be able to assist you in identifying an appropriate investment manager. 😉

What Now for 2022?

As I made clear earlier, at Sidoxia, we do not attempt to predict the directions of markets, but rather we look to opportunistically take advantage of many different dynamic areas that we believe provide the best risk-adjusted return potential for our clients.

However, although we freely admit we are not Nostradamus, we do closely follow a wide spectrum of areas in financial markets to best position our investments. Here are some thoughts on some hot-button issues that are top-of-mind as we enter 2022.

Stocks Remain Attractive: Stocks are still attractively priced broadly considering where interest rates stand today. Most people don’t realize that stock prices are actually cheaper today than they were a year ago because earnings will be up roughly +50% in 2021 (see chart below) and stock prices are only up +27%. Stated differently, the price of the market as measured by the forward price-earnings ratio (P/E) has declined, even though the stock market has melted up. Under a different lens, stocks are also attractively priced if you consider bonds are generally yielding 1-2% versus the 4-5% on stocks as measured by the earnings yield of the S&P 500 index (corporate earnings/price of the index), which can be calculated as an inverse P/E ratio. Regardless, if stock prices do indeed decline this year, while bond yields remain in the same general ballpark, then stocks will only become even more attractive.

Source: Yardeni Research

Federal Reserve Tightening Doesn’t Mean Game Over for Stocks: We have seen this movie before (see chart below). What happened the last time quantitative easing (QE) stopped and the Fed raised its Federal Funds interest rate target? Ten-year interest rate yields went down, and stock prices went up – not necessarily immediately, but ultimately investors were compensated for not knee-jerk selling.

Source: Yardeni Research

Inflation Does Not Appear to Be Spiraling Out of Control: Just take a look at the paltry yield of the 10-year Treasury Note, currently at 1.51%. And please do not just consider the low interest rates here in the U.S., but also internationally in markets like Germany with negative 10-year interest rates (-0.18%) or near-0% interest rates in Japan (0.07%). If inflation were indeed considered a systemic risk, global yields in large developed markets would not be hovering around 0%. Furthermore, COVID-related supply chain bottlenecks appear to be abating. As you can see from the chart below, the average business delivery times have been coming down in recent months as supply disruptions subside – an improving trend for overall prices.

Source: Yardeni Research

The Global Pandemic Deserves Watching: There are plenty of reasons to remain concerned, however science and natural immunity may have brought us closer to neutralizing this health crisis. A worldwide focus on creating vaccines, antiviral drugs, monoclonal antibodies, and other COVID treatments has allowed the global health community to more effectively treat those infected with COVID, while simultaneously lowering the number of related hospitalizations and deaths. There is even hope for areas that have lower vaccination rates than the U.S., for example India (see chart below), which you can see has experienced a dramatic fall-off in COVID cases in part because of the large number of previous infections and subsequent natural immunity created.

Source: Google

There are always talking heads and so-call pundits predicting Armageddon in the stock market, but as you can see from the facts presented, record highs in the stock market aren’t currently painting this picture for 2022. Profits have been gargantuan, interest rates remain near generational lows, valuations remain reasonable, and there are reasons to be optimistic regarding the COVID pandemic. Investing is never easy, but it is not rocket science, if you remain disciplined and patient. Follow this advice and your portfolio should benefit in 2022 and beyond.

www.Sidoxia.com

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (January 3, 2022). Subscribe on the right side of the page for the complete text.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in PFE and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.

January 3, 2022 at 3:42 pm 1 comment

Ohhh Omicron! From Panic to Possibility

If you have recovered from your Thanksgiving turkey and stuffing food coma, you have probably woken up to the sound of a new health scare alarm …Omicron. Where does the name Omicron come from, and why is it named after a Greek alphabet letter? The short answer is the system was created to avoid public confusion with complicated scientific names (e.g., B.1.1.529) and also to mitigate the stigma assigned to a region of origination. Apparently, Spaniards weren’t happy with the name “Spanish Flu” and China didn’t appreciate the “Wuhan Virus” moniker. More specifically, Omicron is the new COVID variant originating from South Africa and believed to be more contagious than other forms of COVID, albeit potentially not as severe.

I am not an epidemiologist and also not a COVID expert, but I do know it is a little early to panic over something scientists have not fully researched with fewer than 100 identified cases as of last week. The good news is that early data is showing mild symptoms in infected individuals and the vast majority of these people impacted by Omicron have been unvaccinated (87%), therefore implying the vaccines are indeed providing protection.

Omicron isn’t the first COVID variant and will likely not be the last. Like the flu, which produces new strains every year, new COVID strains such as Omicron are likely to surface on a regular basis. Luckily, our country is home to the world’s most prolific vaccine makers and reformulated boosters are likely to be a common staple in our healthcare regimen. In fact, the CEO of Pfizer, Inc. (PFE) believes it’s possible to have an Omicron vaccine in 100 days, if needed.

Even if Omicron ends up spreading faster than other variants like Alpha, Beta, Gamma, Delta, Lambda, Mu, and Nu, our healthcare system is much better equipped to deal with Omicron compared to previous pandemic variants. Not only do we have access to the strongest supply of vaccines on the planet, but the United States also has built a stronger testing infrastructure (the CDC shows more than 13 million tests conducted over the last week, excluding California). What’s more, pharmaceutical companies have created very effective therapeutics, including Paxlovid, a game-changing antiviral pill manufactured by Pfizer. The recent Paxlovid trial conducted in combination with the antiviral drug ritonavir showed a reduction in hospitalization and deaths by -89%.

Another fortunate aspect to this new variant is that the rise of Omicron is occurring amidst an improving backdrop of plummeting hospitalizations and COVID-related deaths here in the U.S. (deaths after the recent surge are down more than -50%).

Markets Remain Near Record Highs

Source: Invetors.com

With all these scary Omicron headlines, one would expect a collapse in equity markets. Well, at least not yet. The S&P 500 was actually down less than -1% for the month and remains up a whopping +22% for 2021 (see 5-year chart above). And the tech-heavy NASDAQ index did even better, closing slightly higher for the month and up a similar amount for the year (+21%).

Driving the buoyant stock market performance this year, on the heels of a strong stock market last year (S&P 500 climbed +16%), has been the surge in corporate profits (see chart below). As I like to point out to investors, over the long-run, stock prices follow the direction of earnings, whether we are talking about the overall stock market or individual stocks. Although prices and earnings have both moved up and to the right, neither prices nor profits move in a straight line. One must assume price volatility (i.e. risk) if you want to experience the reward (i.e., long-term returns that substantially beat inflation).

Source: Calafia Beach Pundit

Other Flies in the Ointment

Besides Omicron, there are still some prominent flies in the ointment. Federal Reserve Chairman Jerome Powell just signaled to Congress yesterday that the Fed’s reduction in its bond-buying stimulus program (i.e., “tapering”) could finish a few months early. In other words, the Fed could remove the punch bowl sooner than anticipated – perhaps by as early as this March. Subsequent to the completion of the tapering, industry observers now expect a greater than 50% probability for the first interest hike to occur by June 2022.

If this is not enough to ruffle your post-Thanksgiving feathers, then consider the threat of persistent inflation. Even Fed Chair Powell threw in the towel by officially removing the word “transitory” from his description of inflation. Inflation is not exploding to the double-digit extremes of the 1980s, but as you can see from the chart below (green line), five-year inflation expectations now exceed 3%.

Source: Calafia Beach Pundit

Lastly, the other date to mark on your December calendar, besides the Christmas holiday, is the 15th because that is the date Congress could hit the debt ceiling limit. This high-stakes game of chicken occurs every year or so. This contest between Democrats and Republicans is used as a negotiating tool in the hopes of advancing political agendas. If an agreement is not reached to increase the debt limit, a government shutdown, and then ultimately a government default would transpire. History tells us this will never happen, but the mere game of political brinksmanship could rattle markets in the short-run.

All these risks and fears are nothing new. Financial markets have flourished in the face of worse crises than Omicron, monetary policy changes, inflation, and debt ceilings. The key to sustainable wealth creation is taking a long-term view and being opportunistic in the face of volatility. Shrewdly pivoting your perspective from panic to possibility is essential on the path to prosperity.

www.Sidoxia.com

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (December 1, 2021). Subscribe on the right side of the page for the complete text.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in PFE and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.

December 1, 2021 at 12:33 pm Leave a comment

No Red Blood, Just Green Flood

Normally, investors equate the month of October with scary, blood-curdling screams because horrifying losses during the 1929 and 1987 crashes occurred during this month. Fortunately, for those invested in stocks, they experienced the opposite this last month – a flood of green (new all-time record highs), despite a whole host of frightening factors, including the following:

·       Inflation

·       Supply chain disruptions

·       Federal Reserve monetary policy

·       COVID variants

·       Evergrande’s impact on China and commercial real estate

·       Cryptocurrency volatility

·       Expanding government deficits and debt (stimulus/infrastructure)

·       Government debt ceiling negotiations

·       Declining corporate profit margins

·       Meme stocks

·       And more…boo!

Even though this Halloween season has introduced these many spooky fears, investors still experienced a sugar-high during October. More specifically, the S&P 500 catapulted +6.9% this month (+22.6% Year-to-Date), Dow Jones Industrial Average +5.8% (+17.0% YTD); and NASDAQ +7.3% (+20.3% YTD). With the COVID Delta variant subsiding (see chart below), economic activity rising (Q4 GDP is estimated at +4.8%), and corporate profits going gang busters (33% growth and 84% of corporations are beating Q3 estimates), it should come as no surprise that stock market values continue to rise.

Source: Calculated Risk

As I mention regularly to my readers, there is never a shortage of things to worry about when it comes to your investments, money, and savings. Emotions tend to highjack rational reasoning as non-existent boogeymen scare people into do-nothing decision-making or suboptimal choices. Investing for the long-run requires dedication and discipline, and if you do not have the time and fortitude to do so, it behooves you to find an experienced, independent professional to assist you.

Rather than getting spooked by supply chain fears and inflation plastered all over the newspapers and media outlets, the real way to compound wealth over the long-term is to do what Warren Buffett says, and that is “buy fear, and sell greed.” Unfortunately, our Darwinian instincts embedded in our DNA are naturally designed to do the contrary…”buy greed, and sell fear.” The goal is to buy low and sell high (not buy high and sell low).

Yes, it’s true that over the last year, semiconductor lead times have almost doubled to 22 weeks, and Chinese container shipping costs have about increased 10-fold to over $20,000 (see charts below). However, the economic laws of supply and demand remain just as true today as they did in 1776 when Adam Smith wrote Wealth of Nations (see also Pins, Cars, Coconuts & Chips). Chip makers are building new fabs (i.e., manufacturing plants) and worker shortages at the ports and truck driver deficiencies are slowly improving. Supply scarcity and higher prices may be with us for a while, but history tells us betting against capitalism isn’t a wise decision.

Source: The Wall Street Journal

Not worrying about all the economic goblins and witches can be difficult when contemplating your investments and savings. Nevertheless, as I have consistently reminded my investors and readers, the key pillars to understanding the health of the investment environment are the following (see also The Stool):

·       Interest rates

·       Earnings (Corporate profits)

·       Valuations (How cheap or expensive is the market?)

·       Sentiment (How greedy or fearful are investors?)

The good news is that a) interest rates are near historically low levels; b) corporate profits are on a tear (+33% as mentioned above); c) valuations have come down because profits have grown faster than stock price appreciation; and d) sentiment remains nervous (a good thing) as measured by the massive inflows going into low (negative) yielding bonds. If you consider all these elements, one should not be surprised that we are at-or-near all-time record highs. Obviously, these investment pillars can reverse directions and create headwinds for investors. Until then, don’t be startled if there is more green flood rather than red blood.

www.Sidoxia.com

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (November 1, 2021). Subscribe on the right side of the page for the complete text.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs), but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.

November 1, 2021 at 4:15 pm Leave a comment

Cash Is Trash

The S&P 500 stock market index took a breather and ended its six-month winning streak, declining -4.8% for the month. Even after this brief pause, the S&P has registered a very respectable +14.7% gain for 2021, excluding dividends. Nevertheless, even though the major stock market indexes are roaming near all-time record highs, FUD remains rampant (Fear, Uncertainty, Doubt).

As the 10-Year Treasury Note yield has moved up to a still-paltry 1.5% level this month, the talking heads and peanut gallery bloggers are still fretting over the feared Federal Reserve looming “tapering”. More specifically, Jerome Powell, the Fed Chairman and the remainder of those on the FOMC (Federal Open Market Committee) are quickly approaching the decision to reduce monthly bond purchases (i.e., “tapering”). The so-called, quantitative easing (QE) program is currently running at about $120 billion per month, which was established with the aim to lower interest rates and stimulate the economy.  Now that the COVID recovery is well on its way, the Fed is effectively trying to decrease the size of the current, unruly punch-keg down to the volume of a more manageable punch bowl.

Stated differently, even when the arguably overly-stimulative current bond buying slows or stops, the Federal Funds Rate is still effectively set at 0% today, a level that still offers plenty of accommodative fuel to our economy. Although interest rates will not stay at 0% forever, many people forget that between 2008 and 2015, the Fed Funds Rate stubbornly stayed sticky at 0% (i.e., a full punch bowl) for seven years, even without any spike in inflation.

Because the economy continues to improve, current consensus projections by economists show the first interest rate increase of this cycle (i.e., “liftoff”) to occur sometime in 2022 and subsequently climb to a still extraordinarily low level of 2.0% by 2024 (see “Dot Plot” below). For reference, the projected 2.0% figure would still be significantly below the 6.5% Fed Funds Rate we saw in the year 2000, the 5.3% in 2007, or the 2.4% in 2019. If history is any guide, under almost any scenario, Chairman Powell is very much a dove and is likely to tap the interest rate hike brakes very gently.

Source: Seeking Alpha

Low But Not the Lowest

In a world of generationally low interest rates, what I describe as our low bond yields here in the United States are actually relatively high, if you consider rates in other major industrialized economies and the trillions of negative-interest-rate bonds littered all over the rest of the world (see August’s article, $16.5 Trillion in Negative-Yielding Debt). Although our benchmark government rates are hovering around 1.5%, as you can see from the chart below, Germany is sitting considerably lower at -0.2%, Japan at 0.1%, France at 0.2%, and the United Kingdom at 1.0%.

Source: Yardeni Research & Haver Analytics

Taper Schmaper

As with many government related policies, the Federal Reserve often gets too much credit for successes and too much blame for failures, as it relates to our economy. I have illustrated the extent of how globally interconnected our world of interest rates is, and one taper announcement is unlikely to reverse a four-decade disinflationary declining trend in interest rates.

Back in 2013, after of five years of quantitative easing (QE) that began in 2008, investors were terrified that interest rates were artificially being depressed by a money-printing Fed that had gone hog-wild in bond buying. At that time, pundits feared an imminent explosion higher in interest rates once the Fed began tapering. So, what happened after Federal Reserve Chairman Ben Bernanke broached the subject of tapering on June 19, 2013? The opposite occurred. Although 10-Year yields jumped 0.1% to 2.3% on the day of the announcement, interest rates spent the majority of the next six years declining to 1.6% in 2019, pre-COVID. As COVID began to spread globally, rates declined further to 0.95% in March of 2020, the day before Jerome Powell announced a fresh new round of quantitative easing (see chart below).

Source: Trading Economics (annotations by Sidoxia Capital Management)

Obviously, every economic period is different from previous ones, and fearing to fall off the floor to lower interest rate levels is likely misplaced at such minimal current rates (1.5%). However, panicking over potential exploding interest rates, as in 2013 (which did not happen), again may not be the most rational behavior either.

What to Do?

If interest rates are low, and inflation is high (see chart below), then what should you do with your money? Currently, if your money is sitting in cash, it is losing 4-5% in purchasing power due to inflation. If your money is sitting in the bank earning minimal interest, you are not going to be doing much better than that. Everybody’s time horizon and risk tolerance is different, but regardless of your age or anxiety level, you need to efficiently invest your money in a diversified portfolio to counter the insidious, degrading effects of inflation and generationally low interest rates. The “do-nothing” strategy will only turn your cash into trash, while eroding the value of your savings and retirement assets.

Source: Calafia Beach Pundit

www.Sidoxia.com

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (October 1, 2021). Subscribe on the right side of the page for the complete text.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs), but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.

October 1, 2021 at 1:34 pm 1 comment

Sleeping on Expensive Financial Pillows

Everybody loves a good night’s sleep and that requires a comfortable pillow. Unfortunately, many investors are overpaying for their pillows in the form of overpriced, interest-rate sensitive bonds. If you aren’t careful, your retirement dreams could turn into financial nightmares. More specifically, if the composition of your investment portfolio is overly skewed towards bonds, you stand to lose substantial amounts of money if/when interest rates and inflation persistently increase.

In the short-run, pillows manufactured in the form of bonds can feel cozy in a world of low volatility and generationally-low interest rates. However, investors should also ask themselves, how much longer can this unprecedented 40-year bull market in bonds last? Interest rates approached 20% in 1980 and they stand closer to 1% today (1.24% to be more precise). What may now seem like a cozy bond portfolio may eventually lead to unnerving insomnia.

Source: Trading Economics

We already have negative interest rates in numerous countries around the world and inflation (a rise in general price levels) is running hot at about 5% annually. What this means is investing in a 10-Year Treasury Note yielding 1.24% effectively means you are losing almost -4% per year in purchasing power, if inflation remains at 5% (see chart below). There are numerous investing strategies used to fight inflation, but historically stocks’ ability to raise prices through pricing power has been a useful vehicle to fend off the melting of money’s value.

Source: Calafia Beach Pundit

Despite short-term increases in inflation, getting a good night sleep hasn’t been an issue in 2021 as it relates to the stock market. For the month, the S&P 500 stock index was up +2.3% to a new record, and for the year it has surged +17%. The story for the Dow Jones Industrial Average looks similar – for the month rising +1.3% and year-to-date to +14%.

Thankfully, there haven’t been any night terrors yet either in the bond market. Nevertheless, short-term results have been more of a mixed bag. For the month, the iShares Aggregate Bond Market ETF (Exchange Traded Fund – AGG) rose +1.0% and for 2021 slipped -2%.

In spite of stocks being a great place to invest over the last decade or so, solely investing in stocks is not always rainbows and unicorns. The price you pay for longer-term stock outperformance is shorter-term volatility, which can be disruptive to your sleeping patterns. Case in point, the -35% drop in the S&P 500 index at the start of the COVID-19 global pandemic when anxiety and volatility were at extreme levels.
Despite the market continuously hitting new highs, investors are not completely out of the woods yet as spiking Delta variant cases threaten the trajectory of the current economic recovery.

Source: CDC

Although stocks can feel like stiff, uncomfortable pillows in the short-term, in the long-run, historically those stiff, uncomfortable stocks become vastly more comfortable than bonds. Over the last five years, stock prices have dramatically outperformed bonds by +99% (S&P vs. AGG).

Determining your asset allocation is a monumental decision that should be driven by various factors, including risk tolerance, time horizon, income needs, taxes, and other factors such as your personal objectives. Therefore, even if you subscribe to the premise that stocks outperform in the long run, that doesn’t necessarily mean all retirees should load up solely on a diet of stocks.

Retirees who need income or other risk-averse investors generally can’t afford to lose substantial amounts of their net worth, if stocks tank significantly during a recession. Not only could an all-stock portfolio not generate adequate income, an equity-heavy portfolio could also could lead to emotional sales after market declines, thereby locking in permanent losses at low levels. After these potential losses, there may not be enough time for stock losses to be recouped by retirees. If possible, most investors approaching retirement do not want to be forced to work as a greeter at Wal-Mart to compensate for stock losses.

Everybody’s financial situation is different, and everyone has varying risk tolerances and unique needs. As such, working with an independent, experienced, and professional advisor like Sidoxia Capital Management (www.Sidoxia.com) can assist you with structuring a proper asset allocation, so your investment pillows can help you achieve a good night sleep.

www.Sidoxia.com

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (August 1, 2021). Subscribe on the right side of the page for the complete text.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs), but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.

August 2, 2021 at 1:42 pm Leave a comment

Return to Rationality?

As the worst pandemic in more than a generation is winding down in the U.S., people are readjusting their personal lives and investing worlds as they transition from ridiculousness to rationality. After many months of non-stop lockdowns, social distancing, hand-sanitizers, mask-wearing, and vaccines, Americans feel like caged tigers ready to roam back into the wild. An incredible amount of pent-up demand is just now being unleashed not only by consumers, but also by businesses and the economy overall. This reality was also felt in the stock market as the Dow Jones Industrial Average powered ahead another 654 points last month (+1.9%) to a new record level (34,529) and the S&P 500 also closed at a new monthly high (+0.6% to 4,204). For the year, the bull market remains intact with the Dow gaining almost 4,000 points (+12.8%), while the S&P 500 has also registered a respectable +11.9% return.

Source: Investors.com

The story was different last year. The economy and stock market temporarily fell off a cliff and came to a grinding halt in the first quarter of 2020. However, with broad distribution of the vaccines and antibodies gained by the previously infected, herd immunity has effectively been reached. As a result, the U.S. COVID-19 pandemic has essentially come to an end for now and stock prices have continued their upward surge since last March.

Insanity to Sanity?

With the help of the Federal Reserve keeping interest rates at near-0% levels, coupled with trillions of dollars in stimulus and proposed infrastructure spending, corporate profits have been racing ahead. All this free money has pushed speculation into areas such as cryptocurrencies (i.e., Bitcoin, Dogecoin, Ethereum), SPACs (Special Purpose Acquisition Companies), Reddit meme stocks (GameStop Corp, AMC Entertainment), and highly valued, money-losing companies (e.g., Spotify, Uber, Snowflake, Palantir Technologies, Lyft, Peloton, and others). The good news, at least in the short-term, is that some of these areas of insanity have gone from stratospheric levels to just nosebleed heights. Take for example, Cathie Wood’s ARK Innovation Fund (ARKK) that invests in pricey stocks averaging a 91x price-earnings ratio, which exceeds 4x’s the valuation of the average S&P 500 stock. The ARK exchange traded fund that touts investments in buzzword technologies like artificial intelligence, machine learning, and cryptocurrencies rocketed +149% last year in the middle of a pandemic, but is down -10.0% this year. The Grayscale Bitcoin Trust fund (GBTC) that skyrocketed +291% in 2020 has fallen -5.6% in 2021 and -48.1% from its peak. What’s more, after climbing by more than +50% in less than four months, the Defiance NextGen SPAC fund (SPAK) has declined by -28.9% from its apex just a few months ago in February. You can see the dramatic 2021 underperformance in these areas in the chart below.

Source: Marketsmith

Inflation Rearing its Ugly Head?

The economic resurgence, weaker value of the U.S. dollar, and rising stock prices have pushed up inflation in commodities such as corn, gasoline, lumber, automobiles, housing, and a whole host of other goods (see chart below). Whether this phenomenon is “transitory” in nature, as Federal Reserve Chairman Jerome Powell likes to describe this trend, or if this is the beginning of a longer phase of continued rising prices, the answer will be determined in the coming months. It’s clear the Federal Reserve has its hands full as it attempts to keep a lid on inflation and interest rates. The Fed’s success, or lack thereof, will have significant ramifications for all financial markets, and also have meaningful consequences for retirees looking to survive on fixed income budgets.

Source: Calafia Beach Pundit

As we have worked our way through this pandemic, all Americans and investors look to change their routines from an environment of irrationality to rationality, and insanity to sanity. Although the bull market remains alive and well in the stock market, inflation, interest rates, and speculative areas like cryptocurrencies, SPACs, meme-stocks, and nosebleed-priced stocks remain areas of caution. Stick to a disciplined and diversified investment approach that incorporates valuation into the process or contact an experienced advisor like Sidoxia Capital Management to assist you through these volatile times.

www.Sidoxia.com

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (June 1, 2021). Subscribe on the right side of the page for the complete text.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs), but at the time of publishing had no direct position in GME, AMC, SPOT, UBER, SNOW, PLTR, LYFT, PTON, GBTC, SPAK, ARKK or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.

June 1, 2021 at 3:30 pm 3 comments

April Flowers Have Investors Cheering Wow-sers!

Normally April showers bring May flowers, but last month the spring weather was dominated by sunshine that caused stock prices to blossom to new, all-time record highs across all major indexes. More specifically, the S&P 500 jumped +5.2% last month, the NASDAQ catapulted +5.4%, and the Dow Jones Industrial Average rose +2.7%. For the year, the Dow and S&P 500 index both up double-digit percentages (11%), while the NASDAQ is up a few percentage points less than that (8%).

What has led to such a bright and beaming outlook by investors? For starters, economic optimism has gained momentum as the global coronavirus pandemic appears to be improving after approximately 16 months. Not only are COVID-19 cases and hospitalizations rates declining, but COVID-19 related deaths are dropping as well. A large portion of the progress can be attributed to the 246 million vaccine doses administered so far in the United States.

Blossoming Economy

As a result of the improving COVID-19 health climate, economic activity, as measured by Gross Domestic Product (GDP), expanded by a healthy +6.4% rate during the first quarter. Economists are forecasting second quarter growth to accelerate to an even more brilliant rate of +10%.

As the economy further re-opens and pent-up consumer demand is unleashed, activity is sprouting up in areas like airlines, hotels, restaurants, bars, movie theaters and gyms. An example of consumer demand climbing can be seen in the volume of passenger traffic in U.S. airports, which has increased substantially from the lows a year ago, as shown below in the TSA (Transportation Security Administration) data.

Source: Calafia Beach Pundit

A germinating economy also means a healthier employment market and more jobs. The chart below shows the dramatic decline in the number of jobless receiving benefits and pandemic unemployment assistance.

Fed Fertilizer & Congressional Candy

Monetary and fiscal stimulus are creating fertile ground for the surge in growth as well. The Federal Reserve has been clear in their support for the economy by effectively maintaining its key interest rate target at 0%, while also maintaining its monthly bond buying program at $120 billion – designed to sustain low interest rates for the benefit of consumers and businesses.

From a fiscal perspective, Congress is serving up some sweet candy by doling out free money to Americans. So far, roughly $4 trillion of COVID-19 related stimulus and relief have passed Congress (see also Consumer Confidence Flies), and now President Biden is proposing roughly an additional $4 trillion of stimulus in the form of a $2 trillion jobs and infrastructure plan and a $1.8 trillion American Families Plan.

Candy and Spinach

While Congress is serving up trillions in candy, eventually, Americans are going to have to eat some less appetizing spinach in the form of higher taxes. Generally speaking, nobody likes higher taxes, so the question becomes, how does the government raise the most revenue (taxes) without upsetting a large number of voters? As 17th century French statesman Jean-Baptiste Colbert proclaimed, “The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing.”

President Biden has stated he will only increase income taxes on people earning more than $400,000 annually and increase capital gains taxes for those earning more than $1,000,000 per year. According to CNBC, those earning more than $400,000 only represents 1.8% of total taxpayers.

Bitter tasting spinach for Americans may also come in the form of higher inflation (i.e., a general rise in a basket of goods and services), which silently eats away at everyone’s purchasing power, especially those retirees surviving on a fixed income. Federal Reserve Chairman Jerome Powell sees any increase in inflation as transitory, but if prices keep rising, the Federal Reserve will be forced to increase interest rates. Such a reversal in rates could choke off economic growth and potentially force the economy into a recession.

 If you strip out volatile energy prices, the good news is that underlying inflation has not spiraled higher out of control, as you can see from the chart below.

Source: Calafia Beach Pundit

In addition to the concerns of potential higher taxes, inflation, and rising interest rate policies from the Federal Reserve, for many months I have written about my apprehension about the speculation in SPACs (Special Purpose Acquisition Companies) and cryptocurrencies like Bitcoin. There are logical explanations to invest selectively into SPACs and purchase Bitcoin as a non-correlated asset for diversification purposes and a hedge against the dollar. But unfortunately, if history repeats itself, speculators will eventually end up in a pool of tears.

While there are certainly some storm clouds on the horizon (e.g., taxes, inflation, rising interest rates, speculative trading), April bloomed a lot of flowers, and the near-term forecast remains very sunny as the economy emerges from a global pandemic. As long as the government continues to provide candy to millions of Americans; the Federal Reserve remains accommodative in its policies; and the surge in pent-up demand persists to drive economic growth, we likely have some more time before we are forced to eat our spinach.

www.Sidoxia.com

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (May 3, 2021). Subscribe on the right side of the page for the complete text.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs), but at the time of publishing had no direct position in GME or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.

May 3, 2021 at 3:55 pm Leave a comment

Consumer Confidence Flies as Stock Market Hits New Highs

As the economy starts reopening from a global pandemic that is improving, consumers and businesses are beginning to see a light at the end of the tunnel. The surge in the recently reported Consumer Confidence figures to a new one-year high (see chart below) is evidence the recovery is well on its way. A stock market reaching new record highs is further evidence of the reopening recovery. More specifically, the Dow Jones Industrial Average catapulted 2,094 points higher (+6.2%) for the month to 32,981 and the S&P 500 index soared +4.2%. A rise in interest rate yields on the 10-Year Treasury Note to 1.7% from 1.4% last month placed pressure on technology growth stocks, which led to a more modest gain of +0.4% in the tech-heavy NASDAQ index during March.

Source: MarketWatch

Comeback from COVID

With a combination of 150 million vaccine doses administered and 30 million cumulative COVID cases, the U.S. population has creeped closer toward herd immunity protection against the virus and pushed down hospitalizations dramatically (see chart below).

Source: Centers for Disease Control (CDC)

Also contributing to investor optimism have been the rising values of investments and real estate assets thanks to an improving economy and COVID case count. As you can see from the chart below, the net worth of American households has more than doubled from the 2008-2009 financial crisis to approximately $130 trillion dollars, which in turn has allowed consumers to responsibly control and manage their personal debt. Unfortunately, the U.S. government hasn’t been as successful in keeping debt levels in check.

Source: Calafia Beach Pundit

Spending and Paying for Infrastructure Growth

Besides focusing on positive COVID trends, investors have also centered their attention on the passage of a $1.9 trillion stimulus bill last month and a new proposed $2.3 trillion infrastructure bill that President Biden unveiled details on yesterday. At the heart of the multi-trillion dollar spending are the following components (see also graphic below):

  • $621 billion modernize transportation infrastructure
  • $400 billion to assist the aging and disabled
  • $300 billion to boost the manufacturing industry
  • $213 billion to build and retrofit affordable housing
  • $100 billion to expand broadband access
Source: The Wall Street Journal

With over $28 trillion in government debt, how will all this spending be funded? According to The Fiscal Times, there are four main tax categories to help in the funding:

Corporate Taxes: Raising the corporate tax rate to 28% from 21% is expected to raise $730 billion over 10 years

Foreign Corporate Subsidiary Tax: A new global minimum tax on foreign subsidiaries of American corporations is estimated to raise $550 billion

Capital Gains Tax on Wealthy: Increasing income tax rates on capital gains for wealthy individuals is forecasted to raise $370 billion

Income Tax on Wealthy: Lifting the top individual tax rate back to 39.6% for households earning more than $400,000 per year is seen to bring in $110 billion

Besides the economy being supported by government spending, growth and appreciation in the housing market are contributing to GDP growth. The recently released housing data shows housing prices accelerating significantly above the peak levels last seen before the last financial crisis (see chart below).

Source: Calculated Risk

Although the economy appears to be on solid footing and stock prices have marched higher to new record levels, there are still plenty of potential factors that could derail the current bull market advance. For starters, increased debt and deficit spending could lead to rising inflation and higher interest rates, which could potentially choke off economic growth. Bad things can always happen when large financial institutions take on too much leverage (i.e., debt) and speculate too much (see also Long-Term Capital Management: When Genius Failed). The lesson from the latest, crazy blow-up (Archegos Capital Management) reminds us of how individual financial companies can cause billions in losses and cause ripple-through effects to the whole financial system. And if that’s not enough to worry about, you have rampant speculation in SPACs (Special Purpose Acquisition Companies), Reddit meme stocks (e.g., GameStop Corp. – GME), cryptocurrencies, and NFTs (Non-Fungible Tokens).

Successful investing requires a mixture of art and science – not everything is clear and you can always find reasons to be concerned. At Sidoxia Capital Management, we continue to find attractive opportunities as we strive to navigate through areas of excess speculation. At the end of the day, we remain disciplined in following our fundamental strategy and process that integrates the four key legs of our financial stool: corporate profits, interest rates, valuations, and sentiment (see also Don’t Be a Fool, Follow the Stool). As long as the balance of these factors still signal strength, we will remain confident in our outlook just like consumers and investors are currently.

www.Sidoxia.com

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (April 1, 2021). Subscribe on the right side of the page for the complete text.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs), but at the time of publishing had no direct position in GME or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.

April 1, 2021 at 2:10 pm Leave a comment

New Year’s Resolutions and Vaccine Distributions

Many people were ready to flush 2020 down the toilet after the novel coronavirus (COVID-19) global pandemic dominated the daily headlines, but panic eventually turned into optimism. With last year and a new year celebration now behind us, the annual tradition of creating a New Year’s resolution to better one’s life will be a challenge for many in 2021. Why? Well, from a financial perspective, the stock market, as measured by the S&P 500 index, finished the year at another mind-boggling, all-time record high (+16% for the year), making 2020 a tough act to follow.

One area of the stock market performed exceptionally well. With millions of employees, students, and bored Americans locked down for much of the year, demand for computers, mobile phones, and internet-connected televisions swelled. Due to a flood of sales into devices, gadgets, equipment, and software, technology stocks became huge beneficiaries in 2020. The performance of this sector can be gauged by the results of the tech-heavy NASDAQ index, which skyrocketed an astounding +44%.

Countering the Confusion

Given this unexpected surge in stock prices, many casual observers are asking how is it possible the Dow Jones Industrial Average capped off a year above the 30,000 level (best ever) after a year when 80 million people contracted COVID-19 and almost 2 million humans died from the virus?

This month, we will try to answer this confusing question. We shall explore the factors behind the unprecedented collapse early in the year and the subsequent recovery in stock prices surrounding this perplexing virus.

We’ve experienced a lot over the last year: death, destruction, an emotionally divisive presidential election, social distancing, face-coverings, Amazon deliveries, Netflix binging, DoorDash food deliveries, hand-sanitizer stocking, toilet-paper runs, and endless pants-less Zoom video sessions. After all this insanity, here are some reasons for why your and my investment accounts and 401(k) balances still managed to appreciate significantly last year:

  • A COVID Cure: Although roughly only 4 million doses of the COVID-19 vaccine have been administered to date (after a 20 million goal), the government has contracted for the delivery of 400 million vaccine doses from Pfizer Inc. (PFE) and Moderna Inc. (MRNA) by summertime. With these two FDA (Food and Drug Administration) approvals alone, these doses should be enough to vaccinate all but about 60 million of the roughly 260 million adult Americans who are eligible to be inoculated. Even better, each of these cures appear to be over 90% effective. What’s more, in the not-too-distant future, additional relief is on its way in the form of further vaccine approvals by the likes of Johnson & Johnson (JNJ), Novavax Inc. (NVAX), AstraZeneca (AZN), and the Sanofi (SNY) / GlaxoSmithKline (GSK).
  • Fed Firemen to the Rescue: As the COVID flames are blazing with record numbers of cases, hospitalizations, and deaths, the Federal Reserve firemen have come to an economic rescue by providing accommodative monetary policies. By effectively setting the benchmark Fed Funds Rate to 0% (see chart below), our central bank is not only stimulating loan activity for businesses, but also lowering the cost of mortgages and credit cards for consumers. In addition, the Fed has been providing support to financial markets and invigorating the economy through its asset purchases. More specifically, the Fed outlined its activities in its most recent December statement:

The Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.

  • Economic Recovery is Well on its Way: In addition to the unmatched monetary policy stimulus from the Federal Reserve, we have also experienced an unparalleled $4 trillion in fiscal stimulus to trigger a sharp rebound in economic activity (see red line in chart below). There have been multiple rounds of PPP (Paycheck Protection Program) loans given to small businesses, millions of direct checks distributed to unemployed individuals, along with a host of other programs covering the healthcare, education, and infrastructure industries. As a result of these measures, coupled with the vaccines unleashing massive amounts of pent-up demand, pundits are forecasting above-trendline economic GDP growth in 2021 approximately 4% – 5% (e.g., Merrill Lynch +4.6%, Goldman Sachs +5.9%, and the Federal Reserve +3.7% to +5.0%).
Source: Calculated Risk

As part of the recovery, the banner year in stocks has also helped catapult consumer household balance sheets to over $120 trillion dollars, while simultaneously reducing debt (leverage) ratios (see chart below).

Source: Calafia Beach Pundit

Flies in the Ointment

It’s worth noting that not all is well in COVID-land. Unemployment rates remain at elevated recessionary levels and industries such as travel, leisure, and restaurants persist in devastation by the pandemic. Politically, the hotly contested 2020 presidential election has largely been resolved, but a Georgia runoff vote this week for two Senate seats could swing full control of Congress to the Democrats. With the stock market at fresh new highs, a Democrat sweep in Georgia would likely be interpreted as a mandate for President-elect Biden to increase taxes for many people and businesses. Under this scenario, a temporary downdraft in the market should come as no surprise to any investor. However, any potential tax hikes on corporations and the wealthy should be accompanied with more infrastructure spending and fiscal spending, which could offset the drag of taxes to varying degrees.

Although Sidoxia Capital Management is still finding plenty of opportunities in the stock market while considering these record low interest rates (yield on 10-year Treasury Note of only 0.92%), areas of vulnerability still exist in recent high-flying, money-losing IPOs (Initial Public Offerings) such as Snowflake Inc. (SNOW), Airbnb Inc (ABNB), and DoorDash Inc (DASH).

Other cautionary areas of excess speculation include the hundreds of SPAC (Special Purpose Acquisition Company) deals totaling more than $70 billion in 2020, and the reemergence of Bitcoin froth (up greater than +300% this year). The recent rush into Bitcoin has been fierce, but industry veterans with memory greater than a gnat recall that Bitcoin plummeted more than -80% from its peak to trough in 2018. Suffice it to say, Bitcoin is not for the faint of heart and buyers should beware.While there was a lot of pain and suffering experienced by millions due to the COVID-19 global pandemic, there was a lot to be thankful for as well, including vaccines to cure the global pandemic. Even though we had another record year at Sidoxia Capital Management, there is always room for improvement. At Sidoxia our New Year’s resolution is always the same: Provide superior investment management and financial planning services, as we build sustaining, long-term relationships with our clients.

www.Sidoxia.com

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (January 4, 2021). Subscribe on the right side of the page for the complete text.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in AMZN, NFLX, MRNA, ZM, PFE, NVAX, and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in DASH, JNJ, AZN, SNY, GSK, SNOW, ABNB, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.

January 4, 2021 at 2:55 pm Leave a comment

Election End + Vaccine Victory = Dow 30,000

There are many variables that affect the direction of the stock market, but there were two factors that pushed the stock market to a record high of 30,000 on the Dow Jones Industrial Average. The mathematical equation solved last month was the following: (Election End + Positive Vaccine Data) = Dow 30,000.

Election Clouds of Uncertainty Lifted

Former Vice President Joe Biden secured 81.1 million popular votes and 302 electoral votes, while incumbent President Donald Trump earned 73.9 million popular votes and 232 electoral votes. President Trump has filed numerous lawsuits in various states challenging the validity of the election results and he has claimed voter fraud in numerous states. However, if the Electoral College certifies the results on December 14th, reversing the election outcome by President Trump will become even more challenging. With President Trump getting 47% of the total versus 51% for President-elect Biden, the country largely remains divided, but investors have gained significant confidence now that the clouds of election uncertainty have lifted.

Vaccine Optimism

Investor optimism was further buoyed by 95%-effective vaccine data released by pharmaceutical companies, Pfizer, Inc. (PFE), BioNTech (BNTX), and Moderna Inc. (MRNA), which helped the stock market surge last month to an all-time record high of 30,000 in the Dow Jones Industrial average (see chart below) before slightly dipping at the end of the month to 29,638 . More specifically, the Dow soared +12% (3,137 points) for the month; the S&P 500 index 11%, and the NASDAQ +12%. For the year, the Dow, S&P, and NASDAQ have climbed +4%, +12%, and +36%, respectively.

Source: Investors.com

Rotating Growth for Value and Large for Small

Given a new president variable with President-elect Biden, stock market investors have reassessed which economic factors and new legislative policies will affect future stock market returns. As I have been discussing with Sidoxia Capital Management clients and Investing Caffeine readers for years, the level of outperformance of “Growth” stocks over “Value” stocks, and “Large-cap” stocks over “Small-cap” stocks has been staggering. If you consider the Russell 1000 Growth index (IWF) has outperformed the Russell 1000 Value index (IWD) by 102% (120% vs. 18%, respectively) since 2016, and the S&P 100 index (Large-cap) outpaced the Russell 2000 (Small-cap) by 33% (67% vs. 34%), you can appreciate the benefit investors have enjoyed by investing with the Large-cap Growth formula in the stock market. But as I have previously pointed out, this level of outperformance is not sustainable forever, historically. Last month, we saw this gap narrow as Small-cap stocks advanced +18% (IWM – Russell 2000) and Value stocks +13% (Russell 1000 Value). Embedded within the Value segment, the energy sector (XLE) skyrocketed +28% for the month and financials (XLF) by +17%.

What Now? Politics Focus on Georgia

Another significant contributing factor to the recent rally has been the election gridlock outcome in Congress. Leading up to the elections, political polls incorrectly predicted a “Blue Wave” of Democratic victories in the House of Representatives and Senate. Under that scenario, Democrats would have had a blank check mandate to push a broad liberal agenda across America. That did not happen. Republicans actually gained more seats than Democrats in the House, and Republicans only lost one seat in the Senate.

All eyes are now on the Georgia Senate runoff election in January. As things stand currently, we effectively have a stalemate in Congress, meaning Democrats will have to fight tooth and nail to pass any new legislation and/or institute higher taxes. If both Democrat candidates win in the Georgia runoff, President-elect Biden and the Democrats will have a narrow majority in Congress, which could lead to more progressive measures, including tax hikes on the wealthy.

Economic Rebound Intact

Despite the uptick in COVID-19 cases and hospitalizations, the economic rebound keeps moving forward. In fact, recent Gross Domestic Product (GDP) forecasts for the fourth quarter of 2020 are expected to exceed an average of +6%. As you can see in the chart below, corporate profits have bounced back to record high and remain relatively high to the slower recovery in GDP.

Source: Calafia Pundit

The economic resurgence experienced has not been limited to the United States. The global expansion, especially in China, has shown up in the upturn of World Trade Volume (see chart below).

Source: Scott Grannis

Between the Dow hitting 30,000, the millions of votes counted in the elections, and the vaccine effectiveness rates, there have been many numbers to contemplate last month. Suffice it to say, however, the mathematics of these figures show that investors are using this formula to earn all-time record results in the stock market.

www.Sidoxia.com

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (December 1, 2020). Subscribe on the right side of the page for the complete text.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFS), but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.

December 1, 2020 at 1:03 pm Leave a comment

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