This comment was recently issued by asset managers, market research firms, and market newsletters writers and issued by Barron’s.
July 16: The Covid-19 pandemic was a rare historical event that had a devastating impact on the stock market. Retail stocks were particularly hard hit. The pandemic made shopping a predominantly online experience, which was bad news for brick and mortar stores but good news for retailers overall. The initial forecast was bleak: over 8,300 US stores were closed in 2020 and 400 stores are expected to close in 2021.
Many investors who held retail stocks suffered losses during the pandemic. We decided to hold out; we have expanded our existing positions and even added some new ones. One reason for this was that we viewed the pandemic as a temporary event. The other reason was that we looked closely at their balance sheets and found that they were financially sound companies with good management to steer them through the crisis.
For example, let’s look at the second quarter of 2021.
American Eagle Outfitter
increased by 28%; Buckle, 26%;
17%; and Skechers, 19%. Companies have weathered internet shopping and the pandemic and are still good stocks. Although there can also be some downside risks – such as labor shortages, inflation for goods and services, supply chain and distribution problems, an economic slowdown, and online competition like
– As the economy continues to open, retail may continue to recover.
—Roger Frank, Russ Kaplan
In a nutshell: quarterly newsletter
Robinson value management
July 15: On August 27, 2020, the US Federal Reserve made a significant and more accommodating change of course. If we translate Chairman Powell’s Fed idiom into lay language, it could look something like this:
We’re sick of inflation. It is like that in the 1970s. The incentive provided by zero interest rates is simply not enough. Taking rates below zero when you’re the world’s reserve currency is scary, so we have to print money. To blame for the demographics. We will no longer be put off by overheated labor markets because inflation seems dead. Additionally, in 2019 we met with real people across the country and they said they like a strong job market. We were surprised. But with that policy coverage, we can buy all the government bonds Congress needs from us and will not slow down until actual inflation is at least 2% “average”.
So Powell promised more price inflation and here it is! The consumer price index for all urban consumers rose 5% from May 2020 to May 2021, the largest 12-month increase since June 1992. During the same period, the National Association of Realtors reported that the average home price rose 24% (from 283,500 USD to USD 350,000) and the S&P 500 rose about 40%. Same song, third verse. Someone blowing?
—Amy Abbey Robinson, Charles W. Robinson III
New bullish on bonds
The Aden Prediction
July 15: The outlook for interest rates has changed. There are increasing signs that interest rates will continue to fall and will remain low for a long time to come. Lower rates are very good for bond prices. They will go up and likely outperform some of the other markets. Therefore, we now recommend that you buy long-term US Treasuries with 15% of your total portfolio. If you’d rather buy a bond ETF then buy TLT [iShares 20+ Year Treasury Bond]that replicates the 20-year US Treasury bond. We also like TIPS, the long-term inflation-linked bond.
—Pamela and Mary Anne Aden
Buybacks are picking up speed
US focus: stocks
Ned Davis Research
July 13: The first step many CFOs take to protect their businesses during a liquidity crisis is suspension [share] Buyback programs. There was no shame in taking this step in the early stages of the pandemic. Net buybacks for the S&P 500 were nearly halved, from a high of $ 750 billion in 2019 to $ 382 billion.
With the return to record earnings and cash flows clear, companies have begun to announce a resumption of buyback programs. The successful stress tests should allow financials, historically the second largest buyback, to make a big contribution. The earnings rebound should lead to more buybacks and another source of demand for stocks.
—Ed Clissold, Thanh Nguyen
The appeal of alternative assets Asset
Half-year outlook for 2021
Defiant Capital Group
July 12: The correlation between stocks and bonds has been positive since March 2020, the longest positive correlation between the two assets in two decades. Low interest rates, adjustments to monetary and fiscal policies, and highly interconnected global markets have limited the diversification benefits of a typical portfolio of stocks and bonds. In the long term we still see potential for a “60/40 base” for risk diversification, but in the short term we expect the diversification benefits to remain limited as: 1) the (likely) imminent announcement of a Fed tightening, 2) concerns about economic growth the Covid Delta variant and 3) persistent inflation.
In order to diversify their portfolios, we recommend that investors look outside the traditional asset classes for alternatives, real assets (infrastructure and REITs) and private debt (lower middle class), all of which can do well in the current environment.
Boom times for architects
Market comment on the second quarter of 2021
Seelaus asset management
July 8: In the era of the pandemic, companies spent huge sums of money to operate remotely. Traditional expenditures for investment projects and long-term capacity expansions have been postponed. Now that companies are seeing rising demand and a return to normal, they need to catch up to expand their capacity and upgrade equipment. One sign of this is United Airlines’ recent announcement of its largest $ 30 billion purchase to date
Jets. It’s quite a change from a year ago when the skies were almost empty and investors wondered which big airline would fail and whether Boeing would survive without federal aid. Well, given the strong demand, the concern is, how will manufacturers cope with increased manufacturing activity?
June’s ISM manufacturing index of 60.6 indicates robust demand (anything over 50 means expansion), but 17 out of 18 manufacturing industries said they were suffering from slower deliveries due to raw material or input shortages. The Architectural Building Institute’s activity index has skyrocketed while new project inquiries have skyrocketed. Kermit Baker, chief economist at the American Institute of Architects, summed up the current situation succinctly: “Despite rising costs for building materials and delivery delays, design activity is surging as more and more places reopen.” We own a large number of companies that are responding to increasing demand after investment projects in a variety of industries, with many still selling at attractive valuation levels.
—James P. O’Mealia, Jed Glick
E-mail: [email protected]m