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The Best of What They Said and I Read Week Ending 9/27/2020

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 25, 2020 – The Stock Market Had a Bad Week.   At Least It Wasn’t a Terrible One. – Ben Levisohn

  •          …The S&P 500 fell 0.6% to 3298.46, its fourth consecutive week of losses, while the Dow Jones Industrial Average dropped 483.46 points, or 1.7%, to 27,173.96, and the small-company Russell 2000 slumped 4% to 1474.91. Only the Nasdaq Composite, up 1.1% at 10,913.56, managed to escape the week with gain.”  
  •           “…The week began with the U.K. talking about a second shutdown and ended with all of Europe facing down a second wave of infection as France reported its highest number of daily cases and other countries reported spikes as well. In the U.S., the number of cases is rising and the death toll passed 200,000 midweek, leading to the possibility of new shutdowns and sending investors scurrying for safe-haven stocks over recovery plays. Amazon.com finished the week up 4.8%, Apple  finished up 5.1%, and Microsoft closed up 3.7%, while recovery plays Dow fell 8.6% on the week and Chevron dropped 8.2%.  “Stay-at-home stocks are leading, and economic-recovery stocks are getting clobbered,” says Dave Donabedian, chief investment officer at CIBC Private Wealth Management. “There’s some repositioning going on here that says there will be a pullback in the economy, at least in the short term.”
  •  “…On Monday, the S&P 500 came ever so close to finishing the day in correction territory—down 10% from its all-time high—but fought its way back, and attempts to close below 3222.76 later in the week also failed. The Nasdaq-100 also began the week near important support levels, but held. “The market as a whole has shown it can hold when and where it has needed,” says Frank Cappelleri, executive director at Instinet.”


Advisor Perspectives – September 18, 2020 – The Three Tailwinds Supporting Tech – Russ Koesteich of BlackRock

  •          …If you remember the late ’90s you probably remember Pets.com. While the company lasted a scant two years, it rose to fame on the back of an expensive Super Bowl ad and a ubiquitous sock-puppet. What it was not known for was selling many pet supplies. According to Wikipedia, during its first fiscal year revenue totaled about $600,000. Based on my back-of-the envelope math, using 2020 estimates Amazon should generate a similar amount of revenue every 53 seconds.  For investors concerned about the relentless rise of technology stocks, it is important to ask whether the early ’20s are becoming a repeat of the late ’90s? As I’ve argued in the past, I think the answer is no. Tech outperformance is not based on hype or clever mascots but on three dynamics: earnings strength, accommodative monetary policy and accelerating secular trends.”
  •  “…The main reason tech companies continue to dominate: Earnings and margins remain remarkably resilient. This year’s estimates for the S&P 500 Technology Sector suggest earnings growth of nearly 19%. One reason earnings have held up: Many of the industries in technology, notably software, continue to maintain sky-high margins, despite the disruptions caused by COVID.”
  •  “…technology stocks respond well to accommodative policy. While tech performs best in “risk-on” markets, even when volatility is rising tech tends to outperform if financial conditions are easing. Today, the necessities of the pandemic and a significant evolution in the Federal Reserve’s thinking equate to unusually easy policy, with real (inflation-adjusted) long-term rates at record lows.”
  •  “…Tech outperformance predated COVID and has been based on secular changes, both at the household and corporate level: internet retail, 5G, cloud-computing, gaming. As I have highlighted in the past, many of these trends are accelerating. One telling statistic: Despite the opening-up in most states, U.S. credit data continues to indicate that online retail sales are up 50% year-over-year. Another example of COVID accelerating well entrenched trends.”

 The Kiplinger Letter – September 25, 2020 

  • “…A crunch in shipping capacity could boost prices of many holiday items. Ocean freight rates from China to the East and West coasts have soared since spring, as have truck and rail rates on routes originating from Los Angeles.  The usual flow of holiday merchandise from China is competing for space on ships with heavy orders of medical gear like masks. Also, Calif. warehouses that filled up while much of the economy was on lockdown are still being emptied of goods now. Truck space is getting hard to come by, and the industry is still short of drivers.” 
  •  “While the outcome of the ongoing U.S.-China spat over TikTok is unclear…This won’t be the last time the U.S. targets a major Chinese tech company using the expanded regulatory powers of the the Committee on Foreign Investment in the United States, or SFIUS.   CFIUS is now looking into Shenzhen-based Tencent, the world’s largest video game vendor…It’s only the latest manifestation of a widening U.S.-China tech divide that could ultimately cost the global economy $3.5 trillion over the next five years, as barriers to trade and commerce proliferate, threatening to slow innovation.”

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