It is November 17th and so far this month the Dow Jones has rallied from $26,500 to $29,783 (where it closed today). This is significantly better than both the S&P 500 and NASDAQ. We call it the “cyclical recovery”. Meaning when the economy is looking better and there’s clarity on the horizon, the cyclical (economic sensitive) companies outperform. Many of which are currently in your portfolios. The reason behind it is this; Pfizer has a vaccine candidate with a 90% efficacy rate, Moderna has one with 95% efficacy, and Biden won the election with Republicans still controlling the senate. The market currently sees a divided government as a positive but it’s hard to say with full confidence. What I can say with confidence is regardless of a blue sweep, red sweep, Joe Biden or Donald Trump; America will prevail. With all the challenges we’ve faced in the past, our country has always emerged stronger. Just think about some of the obstacles our country has overcome and where we are today. That’s what we do. We learn, we adapt, and we learn to adapt. This year has been nothing but unprecedented. Come to think of it, isn’t every year?
In March our country suffered a self-induced recession and everyone’s portfolio values were significantly impacted to the downside. Retail investors thought the world was ending and they fueled the massive selloff by dumping shares. As investors, we held our ground and grinded back to where we are today. Quite a feat isn’t it? The sellers in March and April are kicking themselves for letting the corrupt media impact their thinking. They’re now left behind and have a lot of work to do to catch up. I said in my March email this will be a “tremendous lesson” and that’s exactly what it was. Every single recession, bear market, correction and selloff in history has been followed by a rip-roaring bull market racing to new highs. I don’t see an overwhelming reason why this pattern can’t continue. If I do see a reason, we will make every effort to be proactive instead of reactive.
Everybody wants growth and there are many ways to achieve it. There isn’t just one simple avenue to healthy long-term economic growth in a complex society like ours. By learning and adapting we will continue the path; and by remaining optimistic about the future you will be rewarded. Not in a straight line upwards but higher highs and higher lows will get us there. According to a FACSET study, third quarter earnings for 86% of S&P 500 companies have exceeded expectations. Productivity is up 4.1% from a year ago, revenues are impressive given the situation, and costs have been cut.
