Posts tagged ‘interest rates’

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

Investors Ponder Stimulus Size as Rates Rise

Stock prices rose again last month in part based on passage optimism of a government stimulus package (currently proposed at $1.9 trillion). But the rise happened before stock prices took a breather during the last couple of weeks, especially in hot growth sectors like the technology-heavy QQQ exchange traded fund, which fell modestly by -0.1% in February. As some blistering areas cooled off, investors decided to shift more dollars into the value segment of the stock market (e.g., the Russell 1000 Value index soared +6% last month). Over the same period, the S&P 500 and Dow Jones Industrial Average indexes climbed +2.6% and +3.2%, respectively.

What was the trigger for the late-month sell-off? Many so-called pundits point to a short-term rise in interest rates. While investor anxiety heightened significantly at the end of the month, the S&P 500 dropped a mere -3.5% from all-time record highs after a slingshot jump of +73.9% from the March 2020 lows.

Do Rising Interest Rates = Stock Price Declines?

Conventional wisdom dictates that as interest rates rise, stock prices must fall because higher rates are expected to pump the breaks on economic activity and higher yielding fixed income investments will serve as better alternatives to investing in stocks. Untrue. There are periods of time when stock prices move higher even though interest rates also move higher
Take 2013 for example – the yield on the benchmark 10-Year Treasury Note climbed from +1.8% to 3.0%, while the S&P 500 index catapulted +29.6% higher (see charts below).

Similarly to now, during 1994 we were still in a multi-decade, down-trending interest rate environment. However, from the beginning of 1994 to the middle of 1995 the Federal Reserve hiked the Federal Funds interest rate target from 3% to 6% (and the 10-Year Treasury yield temporarily climbed from about 6% to 8%), yet stock prices still managed to ascend +17% over that 18-month period. The point being, although rising interest rates are generally bad for asset price appreciation, there are periods of time when stock prices can move higher in synchronization with interest rates.

What’s the Fuss about Stimulus?

One of the factors keeping the stock market afloat near record highs is the prospect of the federal government passing a COVID stimulus package to keep the economic recovery continuing. Even though there is a new administration in the White House, Democrats hold a very narrow majority of seats in Congress, leaving a razor thin margin to pass legislation. This means President Biden needs to keep moderate Democrats like Joe Manchin in check, and/or recruit some Republicans to jump on board to pass his $1.9 trillion COVID stimulus plan. If the bill is passed as proposed, “The relief plan would enhance and extend jobless benefits, provide $350 billion to state and local governments, send $1,400 to many Americans and fund vaccine distribution, among other measures,” according to the Wall Street Journal.

Valuable Vaccines 

Fresh off the press, we just received additional good news on the COVID vaccine front. The U.S. Food and Drug Administration (FDA) approved the third vaccine for COVID-19 by Johnson & Johnson (JNJ). This J&J treatment is also the first single-dose vaccine to be distributed, unlike the other two vaccines manufactured by Pfizer Inc. (PFE) and Moderna Inc. (MRNA), which both require two shots. Johnson & Johnson expects to ship four million doses immediately and 20 million doses by the end of March.

So far, over 50 million doses of the COVID vaccines have been administered, and the White House believes they can go from currently about 1.5 million injections per day to approximately 4 million people per day by the end of March. The combination of the vaccines, mitigation behavior, and a slow march towards herd immunity have resulted in encouraging COVID trends, as you can see from the chart below. However, the bad news is new COVID cases, hospitalizations, and deaths still remain above peak levels experienced last spring and summer.

Revived Recovery

Thanks to the improving COVID trends, a continued economic recovery driven by reopenings, along with fiscal and monetary stimulus, business profits and revenues have effectively recovered all of the 2020 pandemic losses within a year (see chart below).

Source: Dr. Ed’s Blog

But with elevated stock prices have come elevated speculation, which we have seen bubble up in various forms. With the rising tide of new investors flooding onto new trading platforms like Robinhood, millions of individuals are placing speculative bets in areas like Bitcoin; new SPACs (Special Purpose Acquisition Companies); overpriced, money-losing cloud software companies; and social media recommended stocks found on Reddit’s WallStreetBets like GameStop (GME), which was up +150% alone last week. At Sidoxia Capital Management, we don’t spend a lot of time chasing the latest fad or stock market darling. Nevertheless, as long-term investors, we continue to find attractively valued investment opportunities that align with our clients’ objectives and constraints.

Overall, the outlook for the end of this pandemic looks promising as multiple COVID vaccines get administered, and the economic recovery gains steam with the help of reopenings and stimulus. If rising interest rates and potential inflation accelerate, these factors could slow the pace of the recovery and limit future stock market returns. However, if you follow a systematic, disciplined, long-term investment plan, like we implement at Sidoxia, you will be in a great position to prosper financially over the long-run.

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 (March 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 MRNA, PFE, and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in GME, JNJ, 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.

March 1, 2021 at 12:20 pm 2 comments

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

Politics & COVID Tricks

Thanks to a global epidemic, trillions of dollars instantly disappeared during the first quarter of this year, and then, abracadabra…the losses turned into gains and magically reappeared in the subsequent two quarters. After a stabilization in the spread of the COVID-19 virus earlier this year, the stock market rebounded for five consecutive months, at one point rebounding +64% (from late March to early September) – see chart below. However, things became a little bit trickier for the recent full month as concerns heightened over the outcome of upcoming elections; uncertainty over a potential coronavirus-related stimulus package agreement; and fears over a fall resurgence in COVID-19 cases. Although the S&P 500 stock index fell -3.9% and the Dow Jones Industrial Average slipped -2.3% during September, the same indexes levitated +8.5% and +7.6% for the third quarter, respectively.

Source: Investors.com

Washington Worries
Anxiety over politics is nothing new, and as I’ve written extensively in my Investing Caffeine blog, history teaches us that politics have little to do with the long-term performance of the overall stock market (e.g., see Politics & Your Money). Nobody knows with certainty how the elections will impact the financial markets and economy (myself included). But what I do know is that many so-called experts said the stock market would decline if Barack Obama won the presidential election…in reality the stock market soared. I also know the so-called experts said the stock market would decline if Donald Trump won the presidential election… in reality the stock market soared. So, suffice it to say, I don’t place a lot of faith into what any of the so-called political experts say about the outcome of upcoming elections (see the chart below).

COVID Coming Back?

One of the reasons stock prices have risen more than 50%+ is due to a stabilization in COVID-19 virus trends. As you can see from the charts below, new tests, hospitalizations, and death rates are generally on good trajectories, according to the COVID Tracking Project. However, new COVID cases have bumped higher in recent weeks. This recent, troubling trend has raised the question of whether another wave of cases is building in front of a dangerous, seasonally-cooler fall flu season. Traditionally, it’s during this fall period in which contagious viruses normally spread faster.

Source: The COVID Tracking Project

Regardless of the trendline in new cases, there is plenty of other promising COVID developments to help fight this pandemic, such as the pending approvals of numerous vaccines, along with improved therapies and treatments, such as therapeutics, steroids, blood thinners, ventilators, and monoclonal antibodies.

Business Bounce

From the 10,000-foot level, despite worries over various political outcomes, the economy is recovering relatively vigorously. As you can see from the chart below, the rebound in employment has been fairly swift. After peaking in April at 14.7%, the most recent unemployment rate has declined to 8.4%, and a closely tracked ADP National Employment Report was released yesterday showing a higher than expected increase in new private-sector monthly jobs (749,000 vs. 649,000 median estimate).

Source: U.S. Bureau of Labor Statistics

From a housing perspective, house sales have been on fire. Record-low interest rates, mortgage rates, and refinancing rates have been driving higher home purchases and rising prices. Urban flight to the suburbs has also been a big housing tailwind due to the desire for more socially distanced room, additional home office space, and expansive backyards. Adding fuel to the housing fire has been record low supply (i.e., home inventories). The robust demand is evident by the record Case-Shiller home prices (see chart below).

Source: Calculated Risk

There are plenty of industries hurting, including airlines, cruise lines, hotels, retailers, and restaurants but the economic rebound along with government stimulus (i.e., direct government checks and unemployment relief payments) have led to record retail sales (see chart below). Spending could cool if an additional coronavirus-related stimulus package agreement is not reached, but until the government checks stop flowing, consumers will keep spending.

Source: Calculated Risk
Besides trillions of dollars in fiscal relief injected into the economy, the Federal Reserve has also provided trillions in unprecedented relief (see chart below) through its government and corporate bond buying programs, in addition to its Main Street Lending Program.

Source:The Financial Times

There has been a lot of political hocus pocus and COVID smoke & mirrors that have much of the population worried about their investments. In every presidential election, you have about half the population satisfied with the winner, and half the population disappointed in the winner…this election will be no different. The illusion of fear and chaos is bound to create some short-term financial market volatility over the next month, but behind the curtains there are numerous positive, contributing factors that are powering the economy and stock market forward. Do yourself a favor by focusing on your long-term financial future and don’t succumb to politics and COVID tricks.

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, 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.

October 1, 2020 at 1:11 pm Leave a comment

Bridge to Vaccine or Nowhere?

We are approximately eight months into a global pandemic that has infected an estimated 18 million people and taken almost 700,000 lives. Everyone is wrestling with the ripple through effects that COVID-19 has not only had on our personal lives, but also on the broader aspects of our economy, including science, politics, economics, education, mental health, food supply, and transportation. The 7.8 billion people on the planet, including investors, are waiting for a bridge to a COVID-19 vaccine cure to come as soon as possible, so people and the world can begin returning towards normalcy.

The bridge to a COVID cure is not complete yet, but investors are currently paying notice and giving researchers the benefit of the doubt. Last month, stocks continued their advance with the S&P 500 catapulting another 5.5%. Since the low in March this year, stock prices have appreciated an astounding +49%, and are actually in the black (i.e., positive) for the year despite unemployment climbing above 11% and a massive 2nd quarter economic contraction in GDP of -32.9%. Some stock enthusiasm can be attributed to forecasted 3rd quarter GDP growth of 16%. The stock market story is even brighter, if you consider the technology-heavy NASDAQ index rose +6.8% for the month, +62% from this year’s low, and +20% for 2020.

With the destruction of lives and economic activity so severe, how can stock prices be so lofty? In short, after the economy ground to a virtual halt in March, business has been slowly getting better. At the heart of this improvement, the learning curve in treating this deadly virus has slowed the bleeding of the COVID-19 disease. The progress in controlling the virus can be seen in the declining number of daily COVID-19 cases (see chart below).

Source: The COVID Tracking Project

The stabilization and the beginning of a downward trend of cases can be explained with the successful application of therapeutics like remdesivir (manufactured by Gilead Sciences); generic steroids like dexamethasone; improved ventilator implementation in conjunction with blood thinners; and better compliance with social distancing/mask-wearing protocols.

In California, we appear to be on the right path of the curve, as well. Daily infections peaked at 12,807 however, and as of August 1st, daily COVID-19 cases declined to 6,542 (see chart below).

Source: The COVID Tracking Project

The hospitalization picture tells a similar story (see chart below). Even though the number of daily cases more than doubled nationally to record highs, the number of people hospitalized plateaued because of better treatment and the concentration of newly infected cases in the younger demographic age level.

Source: The COVID Tracking Project

In addition to current trends mending, optimism for a COVID-19 vaccine cure is also building, as I alluded to earlier. Economist and blog writer Dr. Ed Yardeni summed up the research developments well.

“The Trump administration has launched “Operation Warp Speed” with the goal of delivering 300 million doses of a safe, effective vaccine for COVID-19 by January 2021, as part of a broader strategy to accelerate the development, manufacturing, and distribution of COVID-19 vaccines, therapeutics, and diagnostics. Congress has directed almost $10 billion to this effort through supplemental funding, including the CARES Act. More than 100 clinical trials of dozens of potential coronavirus treatments are already underway around the world.”

If these timelines are correct, the bridge to a cure is almost here.

Housing Market on a Tear

One of the very positive byproducts of the pandemic has been the red-hot housing market (see chart below), which has been driven by record low interest rates and demand for COVID-friendly housing. People are migrating from tight urban quarters to the suburbs, where people can obtain a home office, a spacious backyard, and a swimming pool. This ravenous home demand is coinciding with generationally low interest rates, including a jaw-droppingly low 30-year fixed-rate mortgage hovering around 3%. All else equal, lower interest rates means consumers make lower monthly payments and can carry more debt, which improves home affordability.

Source: CNBC

Fears of a COVID Collapse

Although there have certainly been some tangible improvements since the depths of the pandemic, there are definite challenges ahead.

Consider the following challenges:

  • Consequences to Unmitigated Government Spending: Congress is working to approve another $1 – $3 trillion dollar stimulus package to buttress our strained economy during the COVID-19 crisis. In the short-run, this money can provide relief to millions of people and businesses that have suffered through the global pandemic. However, in the longer term, spending cutbacks will likely be necessary. Just like somebody going on an endless credit card spending spree, eventually the money borrowed and spent needs to be paid back, or alternatively, a credit limit will ultimately be reached. Sooner or later, the trillions of dollars in spending will trigger collectors (investors) to come knocking. Under these possible scenarios, fiscal responsibility will force dramatic cuts to benefits and services like Social Security, Medicare, education, and military, among other areas.
  • Rising China Tensions: It doesn’t take a genius to figure out our president’s view on China. All one needs to do is read his daily posts on Twitter. Our president’s commentary includes, but is not limited to, our massive trade deficits with China; political unrest in Hong Kong; Chinese consulate closure in Houston, Texas and American consulate closure in Chengdu, China; and blame regarding intellectual property theft and the spread of the “Wuhan” virus. These are only some of the factors contributing to the strained bilateral relationship between the United States and the #2 global economy, China.
  • Presidential Election: The November 3rd presidential election date is just around the corner, and the outcome will likely create uncertainty regarding the trajectory of future U.S. tax rates and other policies.
  • Burst in Tech Bubble? The top 1% of companies in the S&P 500 (Apple Inc., Microsoft Corp., Amazon.com, Alphabet Inc., Facebook Inc.) account for 22% of the value of the index, or more than $6 trillion in market value. Some observers explain this explosion in concentrated technology values by pointing a finger at the Federal Reserve’s zero-interest-rate policy and lack of government regulation, while others point to a behavioral shift in technology demand and usage.
  • Potential Inflation: The inflation threat has been created by trillions of dollars in money printing policies by the Federal Reserve. But it’s not only the trillions of U.S. dollars being printed by the Fed, it’s also trillions in euros, Japanese yen, and Chinese yuan being printed by other global central banks. As a result, the danger of rampant inflation could become a reality.

The foundation may not be fully sturdy yet, but a clear bridge to a recovery is under construction, and the blueprint confirms we have the pieces needed for completion (i.e., a vaccine). As I pointed out in last month’s newsletter (Record Rebound), volatility has been a constant throughout the rebound. Given the pace and questionable sustainability of the bounce, active management is necessary. At Sidoxia Capital Management (www.Sidoxia.com), we continue to prudently manage our client portfolios with the purpose of meeting their customized objectives. Getting from here to achieving your financial goals is a serious challenge, and reaching your economic destination requires a well-designed bridge that won’t collapse.

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 3, 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 GILD, AAPL, AMZN, GOOGL, FB, MSFT and certain exchange traded funds (ETFS), but at the time of publishing had no direct position in TWTR 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.

August 4, 2020 at 9:41 am Leave a comment

Pedal to the Metal Leads to Record Rebound

Like a race car pushing the pedal to the metal, the stock market sped to its best quarterly stock market gains in decades. The +20% rebound in the 2nd quarter S&P 500 index was the best result achieved since 1998. Moreover, the Dow Jones Industrial Average saw its largest quarterly gain (+18%) since 1987, and the technology-heavy NASDAQ index (+31%) saw the most appreciation since 2001. While a snap-back after a shockingly dismal 1st quarter should come as no surprise to many investors, the pace of this rebound is unlikely to be sustainable at this trajectory, given the challenging economic backdrop and COVID public health crisis.

Racing Ahead Via Re-Opening

After experiencing six months of the coronavirus pandemic, the country has been re-opening across all 50 states at differing paces. We can see the benefits of a V-shaped recovery in various indicators, such as the following:

  • Airline Traffic
Source: Calafia Beach Pundit
  • Hotel Occupancy
Source: Calculated Risk
  • Gasoline Consumption
Source: Calculated Risk

Thanks to unprecedented support from the Federal Reserve in the form of trillions of dollars in stimulative money printing that has been injected into the economy (see chart below), and trillions of government support (including 4.8 million PPP [Payroll Protection Program] loans totaling $519 billion), the economic benefits of the re-openings have been tangible. Not only did the economy unexpectedly add 2.5 million jobs last month, but economic growth is also projected to rebound in the back-half of 2020. More specifically, Treasury Secretary Steven Mnuchin recently testified in front of Congress that 3rd quarter economic growth (GDP – Gross Domestic Product) is currently projected at +17%, and 4th quarter at +9%.

Source: Dr. Ed’s Blog

The Stubborn Virus Remains

Many Americans feel liberated from the lifting of stay-at-home orders, but if the re-openings are not handled with proper precautions, the consequences can result in an economic equivalent of serious speeding tickets or jail time. We have experienced this phenomenon firsthand as a surge of new COVID-19 infections has spread predominately across the Southern and Western states, skewed towards younger Americans.

Now that the economic genie has been released out of the bottle, it’s going to be very difficult for state governors and city mayors to stuff the genie back in. Even if the new surge in COVID-19 cases continues, we are more likely to see required health guidelines instituted (e.g., mandatory mask wearing) or rollbacks in certain re-opening phases (e.g., closures of bars, restaurants, and other large gathering establishments). For instance, Disneyland (ticker: DIS) hit some speed bumps when the company just announced its re-opening originally scheduled for mid-July has been delayed indefinitely.

Although COVID infections have been on the rise, driven in part by complacent or irresponsible younger individuals not adhering to social distancing and mask-wearing recommendations, the healthcare treatment regimens have kept the level of deaths at a flat rate (see chart below) and national hospitalization rates at a relatively stable level (see chart below).

Source: IMHE
Source: CDC

The Bridge to a Vaccine

Despite the recent rise in COVID-19 cases, investors have been focused more on the half-glass full developments relating to the pandemic. Approved therapeutics, such as remdesivir by Gilead Sciences Inc. (GILD) and dexamethasone, have proven effective in treating COVID. In addition, ventilator and PPE (Personal Protective Equipment) supplies have become plentiful; virus testing has risen dramatically (see also COVID Comeback); and contact tracing is slowly improving. If you layer in the more than 100 vaccines being developed, including expected Phase 3 trials this year by Pfizer Inc. (PFE), Moderna Inc. (MRNA), Astrazeneca PLC (AZN), Glaxosmithkline PLC (GSK), and Johnson & Johnson (JNJ), there is room for optimism. With all these developments, coupled with more stringent guidelines by governors/federal government/health agencies, and more responsible behavior by individuals (i.e., social distancing, personal hygiene, mask wearing), especially in hot spot regions, there is a credible bridge to managing the virus until a vaccine is approved.

The stock market has been racing ahead at an amazing pace in recent months (+41% since late-March), but with the COVID public health crisis starting to overheat the engine with rising COVID cases, investors should not be shocked to see the driver tap the economic brakes a little in the coming months. For long-term investors like my clients, Sidoxia Capital Management will continue to take advantage of opportunities, while pushing to safely avoid the risky potholes, during these highly volatile times. In periods like these, when your race car has created a large lead, it’s perfectly okay to reassess your circumstances and temporarily take your foot off the pedal before the next turn.

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 (July 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 GILD, MRNA, PFE, JNJ, AZN, GSK, 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.

July 1, 2020 at 3:23 pm 2 comments

This Too Shall Pass

storm

Ever since December 31st last year when China alerted the WHO (World Health Organization) about several cases of unusual pneumonia in Wuhan, a port city of 11 million people in the central Hubei province, the dark coronavirus (Covid-19) clouds began to form. Last week, the storm came rumbling through with a vengeance.

I have been investing for close to 30 years, so facing these temporary bouts of thunder and lightning is nothing new for me. Although the pace of this week’s -3,583 point drop in the Dow Jones Industrial Average was particularly noteworthy, we experienced a more severe -5,000 point correction a little more than a year ago due to China trade war concerns and our Federal Reserve increasing interest rates. What happened after that year-end 2018 drop? Stock prices skyrocketed more than +7,800 points (+36%) to a new record high on February 12th, just a few weeks ago. Over the long-run, stock prices have always eventually moved up to new record highs, but this week reminds us that volatility is a normal occurrence.

This week also reminds us that the best decisions made in life generally are not emotionally panicked ones. The same principle applies to investing. So rather than knee-jerk react to the F.U.D. (Fear, Uncertainty, Doubt), let’s take a look at some of the current facts as it relates to coronavirus (Covid-19):

  • The number of deaths this season in the U.S. from the common flu: 18,000. The number of deaths in the U.S. from coronavirus: 2 individuals (both in WA with underlying health conditions).
  • The number of new coronavirus cases in China is declining. Confirmed infections have fallen from more than 2,000 per day to a few hundred. People are going back to work and companies like Starbucks are re-opening their China stores for business.
  • Coronavirus is relatively benign compared to other contagious pathogens. Roughly 98% of infected individuals fully recover, and deaths are limited to people with weakened immune systems, who in many cases are suffering from other illnesses.
  • Previous viral outbreaks, which were significantly more fatal, were all contained, e.g., SARS (2003-04), MERS (2012), and Ebola (2014-16). In each instance, the stock market initially fell, and then subsequently fully recovered.
  • Although the coronavirus has accelerated in areas outside of China, there are dozens of different companies currently developing a vaccine. If a working vaccine is discovered, a rebound could occur as fast as the drop.
  • Governments and central banks are not sitting on their hands. Coordinated efforts are being instituted to curtail the spread of the virus and also provide liquidity to financial markets.

The actual death toll from the coronavirus is relatively small compared to other pandemics, catastrophes (e.g., 9/11), and wars. However, the hangover effect from the fear, uncertainty, and panic that can manifest in the days, weeks, and months after global events can last for some time. I expect the same to occur in the coming weeks and months as the drip of continued coronavirus headlines blankets social media and the news.

I don’t want to sugar coat the economic impact from a potential pandemic because quarantining 60 million people in China, instituting global travel bans, and closing areas of gathering has and will continue to have a material economic impact. Although history would indicate otherwise, it is certainly possible the current situation could worsen and lead to a global recession. Even if that were the case, I believe we are more likely closer to a bottom, than we are to a top, especially given how low interest rates are now. More specifically, we just hit an all-time record low yield of 1.13% on the 10-Year Treasury. In other words, putting money in the bank isn’t going to earn you much.

sp chart 2020

Source

In summary, the current situation experienced this week is nothing new – we’ve lived through similar situations many times (see chart above). The short-run headlines can get more painful, but in the meantime, you can wash your hands and bathe in Purell. This too shall pass.Investment Questions Border

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 (March 2, 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 and certain exchange traded funds (ETFS), but at the time of publishing had no direct position in SBUX 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.

March 2, 2020 at 6:34 pm 2 comments

A Tale of Two Years: Happy & Not-So-Happy

baby

Happy New Year! If you look at the stock market, 2019 was indeed a happy one. The S&P 500 index rose +29% and the Dow Jones Industrial Average was up +22%. Spectacular, right? More specifically, for the S&P 500, 2019 was the best year since 2013, while the Dow had its finest 12-month period since 2017. Worth noting, although 2019 made investors very happy, 2018 stock returns were not-so-happy (S&P 500 dropped -6%).

18 19

Source: Investor’s Business Daily

As measured against almost any year, the 2019 results are unreasonably magnificent. This has many prognosticators worrying that these gains are unsustainable going into 2020, and many pundits are predicting death and destruction are awaiting investors just around the corner. However, if the 2019 achievements are combined with the lackluster results of 2018, then the two-year average return (2018-2019) of +10% looks more reasonable and sustainable. Moreover, if history is a guide, 2020 could very well be another up year. According to Barron’s,  stocks have finished higher two-thirds of the time in years following a +25% or higher gain.

With the yield on the 10-Year Treasury Note declining from 2.7% to 1.9% in 2019, it should come as no surprise that bonds underwent a reversal of fortune as well. All else equal, both existing bond and stock prices generally benefit from declining interest rates. The U.S. Aggregate Bond Index climbed +5.5% in 2019, a very respectable outcome for this more conservative asset class, after the index experienced a modest decline in 2018.

Happy Highlights

What contributed to the stellar financial market results in 2019? There are numerous contributing factors, but here are a few explanations:

fed fundsSource: Dr. Ed’s Blog

  • Federal Reserve Cuts Interest Rates: After slamming on the brakes in 2018 by hiking interest rates four times, the central bank added stimulus to the economy by cutting interest rates three times in 2019 (see chart above).
  • Phase I Trade Deal with China: Washington and Beijing reached an initial trade agreement that will reduce tariffs and force China to purchase larger volumes of U.S. farm products.
  • Healthy Economy: 2019 economic growth (Gross Domestic Product) is estimated to come in around +2.3%, while the most recent unemployment rate of 3.5% remains near a 50-year low.
  • Government Shutdown Averted: Congress approved $1.4 trillion in spending packages to avoid a government shutdown. The spending boosts both the military and domestic programs and the signed bills also get rid of key taxes to fund the Affordable Care Act and raises the U.S. tobacco buying age to 21.
  • Brexit Delayed: The October 31, 2019 Brexit date was delayed, and now the U.K. is scheduled to leave the European Union on January 31, 2020. EU officials are signaling more time may be necessary to prevent a hard Brexit.
  • Sluggish Global Growth Expected to Rise in 2020: Global growth rates are expected to increase in 2020 with little chance of recessions in major economies. The Financial Times writes, “The outlook from the models shows global growth rates rising next year, returning roughly to trend rates. Recession risks are deemed to be low, currently standing about 5 per cent for the US and 15 per cent for the eurozone.”
  • Potential Bipartisan Infrastructure Spend: In addition to the $1.4 trillion in aforementioned spending, Nancy Pelosi, the Speaker of the Democratic-controlled House of Representatives, said she is willing to work with the Republicans and the White House on a stimulative infrastructure spending bill.

2018-2019 Lesson Learned

One of the lessons learned over the last two years is that listening to the self-proclaimed professionals, economists, strategists, and analysts on TV, or over the blogosphere, is dangerous and usually a waste of your time. For stock market participants, listening to experienced and long-term successful investors is a better strategy to follow.

Conventional wisdom at the beginning of 2018 was that a strong economy, coupled with the Tax Reform Act that dramatically reduced tax rates, would catapult corporate profits and the stock market higher. While many of the talking heads were correct about the trajectory of S&P 500 profits, which propelled upwards by an astonishing +24%, stock prices still sank -6% in 2018 (as mentioned earlier). If you fast forward to the start of 2019, after a -20% correction in stock prices at the end of 2018, conventional wisdom stated the economy was heading into a recession, therefore stock prices should decline further. Wrong!

As is typical, the forecasters turned out to be completely incorrect again. Although profit growth for 2019 was roughly flat (0%), stock prices, as previously referenced, unexpectedly skyrocketed. The moral of the story is profits are very important to the direction of future stock prices, but using profits alone as a timing mechanism to predict the direction of the stock market is nearly impossible.

So, there you have it, 2018 and 2019 were the tale of two years. Although 2018 was an unhappy year for investors in the stock market, 2019’s performance made investors happier than average. When you combine the two years, stock investors should be in a reasonably good mood heading into 2020 with the achievement of a +10% average annual return. While this multi-year result should keep you happy, listening to noisy pundits will make you and your investment portfolio unhappy over the long-run. Rather, if you are going to heed the advice of others, it’s better to pay attention to seasoned, successful investors…that will put a happy smile on your face.

Investment Questions Border

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 2, 2019). Subscribe on the right side of the page for the complete text.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions 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 2, 2020 at 4:41 pm Leave a comment

Investors Give Thanks and Feast on New Record

turkey wade

There were many things to be grateful over the Thanksgiving holiday, including personal finances for many. Stock market investors were especially thankful for the new record highs achieved in the S&P 500 index, which rose a heaping +3.4% last month, bringing 2019 stock market gains to a whopping +25.3%. Any concerns over politics, China trade, global monetary policy, Brexit negotiations, slowing economic growth, and other fears have been overshadowed by record corporate profits, generationally low interest rates, historically low unemployment rates, rising wages, strong consumer confidence, and hopes of an economic recovery abroad.

Despite the strong advances, concerns remain over a bubble or a stratospheric stock market. These worries of inflated gains seem overblown, if you consider stocks were down -6.2% in 2018. In other words, if you combine 2018-2019, so far, the two-year period averages an +8.4% annualized return – a more reasonable advance. One thing is for sure, this bull market, which started in early-2009, has been no turkey. Since the S&P 500 bottomed at 666 in March of 2009, the index finished the month at over 3,140 – almost a quintuple in value over a 10-year period (not too shabby).

I get the question a lot, “Wade, don’t you think the stock market is crazy now and it is going to crash soon? It’s gone up so much and is at a record high.” Just because the stock market hits a record level doesn’t mean it will stop going up. In fact, since 2013, the S&P 500 has hit 38 new, monthly record highs (see chart below). For each of these new records, I have listened to anxious investors brace themselves for another crash resembling the 2008 financial collapse. The only problem is the 100-year flood normally doesn’t come every 10 years, and as history often proves, record highs often beget future new record highs.

0719

Be Careful to Whom You Listen

There are always varying opinions about the level and direction of future stock prices, but I always warn investors to be careful about following the judgments of television talking heads, especially when it comes to economists, strategists, and analysts, all of whom typically have very little experience in actually investing. These prognosticators typically are very articulate and persuasive but have little-to-no experience of really managing money. Traders generally fall into the useless camp as well because their opinions are moving at the speed of light based on the everchanging headlines du jour, thereby making this fickle advice worthless and ineffective. Instead, investors should pay attention to successful long-term investors who have proven the ability to make and preserve wealth through years of up-and-down markets. You don’t have to believe me, but when the most successful investor of all-time, Warren Buffett, says the stock market is ridiculously cheap,” it probably makes sense to pay more attention to his words of wisdom versus the latest political headline or dangerous and speculative day trader advice to buy-buy-buy or sell-sell-sell!

Although Warren Buffett freely provides his opinions, he openly admits he has no idea what direction stock prices will do in the short-run. So, if the greatest investor of all-time cannot predict short-term direction of stocks, then maybe you shouldn’t try to predict either? Case in point, corporate profits were up over 20% in 2018 (see chart below) and stock prices went down, while this year corporate profits have been essentially flat and stock prices have catapulted approximately +25%. This goes to show you that short-term stock movements can be incredibly difficult to predict. You will be much better off by focusing on making sound investments and following a suitable strategy based on your unique objectives and constraints.

op ear

Source: Dr. Ed’s Blog

You may have gotten some heartburn by feasting on too much turkey, mashed potatoes, stuffing, and gravy, however investors are feasting on new record stock market highs despite investor anxiety. When the anxiety eventually turns to euphoria and gluttony, from fear and skepticism, then that will be the time to reach for the Tums antacid.

Investment Questions Border

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 2, 2019). Subscribe on the right side of the page for the complete text.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions 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 2, 2019 at 7:36 pm 1 comment

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