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The Best of What They Said and I Read Week Ending 9/20/2020

Short excerpts from articles I found interesting.  I may not agree with the author and the following material is not intended as investment advice


 Barron’s – September 18, 2020 – The Financial Markets Enter Their Most Treacherous Season – Randall W. Forsyth

  • ·         “…October “is a peculiarly dangerous month to speculate in stocks,” Mark Twain famously wrote. That’s especially true in presidential-election years, the Stock Trader’s Almanac finds. Since 1952, the Dow industrials averaged a 0.8% decline in those years, while the S&P 500 index averaged a 0.7% drop. (Twain further observed that July, January, September, April, November, May, March, June, December, August, and February were other dangerous months to be in the market.)  In Octobers of election years, the market was generally up when the incumbent party won—not surprising, since bull markets tend to favor the party in power. In the 10 incumbent victories since 1944, the S&P 500 advanced seven times, declined twice, and was unchanged once, with an average October gain of 1.4%, the newsletter found. Of the nine times the incumbent was defeated, there were six S&P declines and three increases, for an average drop of 2.1%.”

  U.S. Global Investors – September 18, 2020 – Frank Holmes

  • “In the past three or four months, you may have noticed a plethora of headlines proclaiming the “death” of big U.S. cities such as New York, Chicago and Seattle. To paraphrase Mark Twain, these reports may be greatly exaggerated. However, there’s no denying that many urban city-dwellers—a great number of them high-income—are either relocating into the suburbs or strongly considering it, due to the double-whammy of the coronavirus and historic social unrest.”
  •  “This latent “exodus,” as some are already calling it, may end up being among the biggest in U.S. history, or at least the biggest since the “white flight” of the 1950s and 60s…The implications of this exodus will be felt not just by apartment tenants and city managers but also, potentially, municipal bond investors. The COVID-19 pandemic has led to an enormous loss of tax revenue for cities and states, and combined with the monumental cost of repairing damages sustained during summer-month riots, municipalities could be facing a $1 trillion budget shortfall.” 
  •  “…The major market indices finished mixed this week. The Dow Jones Industrial Average gained 0.45 percent. The S&P 500 Stock Index fell 0.59 percent, while the Nasdaq Composite fell 1.16 percent. The Russell 2000 small capitalization index gained 1.93 percent this week…The 10-year Treasury bond yield rose 1 basis point to 0.695 percent.”
  •   “…Technology shares pushed stocks to a six-week low as investors search for new catalysts to give direction to global markets. The S&P 500 fell for a third day on Friday, with losses accelerating after the benchmark fell below its 50-day moving average…Goldman Sachs says stock volatility will likely increase in the next month driven by a seasonal pickup in investor uncertainty and recommends option buyers focus on stocks or sectors with “significant fundamental catalysts” instead of index option buying strategies for alpha.   Barclays on Friday downgraded Apple, Microsoft and the FANG stocks to market weight, or neutral. In a note to clients, Barclays analysts said stock valuations are approaching extreme levels last seen during the dot-com bubble 20 years ago.”
  •  “…The Organization for Economic Cooperation and Development (OECD) released its forecast that the global economy will contract by 4.5 percent this year – up from a previous estimate of a 6 percent contraction. The OECD estimates that China will grow 1.8 percent in 2020 – the only country expected to experience growth.  Relatively cheap equities, predictable monetary policy, positive bond yields and a robust response to the coronavirus are all reasons to be bullish on China, writes the Financial Times. With many institutional investment funds staying out of the market “for fear of more anti-China moves from Washington in the run-up to the November election,” now is arguably a good time to increase allocations to that market.”

 Bob Carlson’s Retirement Watch Newsletter – September 17, 2020 

  • “…The major stock market indexes are more concentrated and less diversified.   Very few stocks have been surging ahead of the rest of the market, giving them increasing shares of the stock indexes. The S&P 500 is especially concentrated, more than at any time in the past. Only five stocks now account for 20% of the S&P 500 and drive its performance and volatility. These stocks are Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Google (GOOGL) and Facebook (FB). A similar concentration occurred in the tech stock bubble that peaked in early 2000. The good news is today the leading stocks and the index, in general, aren’t as highly valued as in 2000.” 
  • “…Even so, there are substantial differences between now and 2000. Though the average stock is rising less than the leading stocks, there now is a high correlation between the two groups of stocks. They tend to move up and down together, though by lesser amounts. That is a stark contrast to 2000 and a sign of a healthier market. Other measures of market breadth also indicate the market today is very different than in 2000. That means if you believe the top five stocks are too risky at this point, there are a number of other stocks that are doing well to consider for your portfolio. The downside is that if the leading stocks start to decline, they might bring the rest of the market with them.”

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