Insights

Top News:

7/20: A joint vaccine candidate from AstraZeneca and Oxford University produced positive responses in ongoing trials.

 

7/21: In a significant step towards stronger fiscal coordination, the 27-nation EU agreed on a EUR750 billion stimulus plan.

 

7/22: In a move certain to escalate tension, the U.S. ordered the closure of a Chinese consulate “to protect American intellectual property.”  Meanwhile, Pfizer and BioNTech received from the U.S. government a conditional order of 100 million doses of its joint vaccine, expected to be delivered by year end.  Finally, U.S. housing market rebounded as record-low mortgage rates spurred home loans and existing-home sales.   

 

7/23: Snapping a 15-week streak of declining initial jobless claims, the latest unexpected uptick comes at a time when Congress is debating additional fiscal stimulus.  Separately, Conference Board’s Leading Economic Index showed improvement in June, though “conditions still point to a weak economic outlook.”

 

7/24: Latest diplomatic tit-for-tat in U.S.-China relations and disagreement in Congress over additional coronavirus relief cast a pall over investor sentiment.

 

Heard on the Street:

“We’ve had a melt-up and that’s very visible in valuation multiples. Stocks are not cheap… We’re seeing major states reversing the reopenings of their economies. So, all this good news we’ve gotten in May and June on the economic front, including even the unemployment numbers, is vulnerable.  On top of all that we’ve got an increasingly and potentially dangerous conflict between the United States and China escalating again.”

— Ed Yardeni of Yardeni Research, in a CNBC interview on 7/19/2020

 

“My bearish view that an overvalued dollar is ripe for a sharp decline reflects two strains of analysis: America’s rapidly worsening macroeconomic imbalances and a government that is abdicating all semblance of global leadership. The July 21 breakthrough in Europe, and what it means for the euro, only deepens my conviction.”

— Stephen Roach, former chairman of Morgan Stanley Asia, in an op-ed on 7/22/2020

 

Longer Game:

As governments worldwide confront gaping holes in their fiscal budgets, wrought by the pandemic, one observer is already proposing taxing the $36 trillion held in tax havens as a source of funding.

 

Aaron Brown, formerly of AQR Capital Management, argues the need for more attractive tax incentives and lower fees for 401(k)s, the backbone of many working Americans’ retirement.

 

Bonus:

Chair of global research at J.P. Morgan, Joyce Chang highlights the acceleration of four paradigm shifts affecting the financial markets: 1) zero percent Treasury yields; 2) unprecedented balance sheet growth at central banks; 3) escalating competition between the U.S. and China; and, 4) deglobalization and resilience of populist governance.

Top News:

7/13: Pfizer and BioNTech announced two vaccine candidates have received “fast track” designation from the FDA, bolstering hope that mass production may begin by year-end.

 

7/14: Largely due to higher gasoline prices, the Consumer Price Index rose for the first time in four months in June.  At less than 1%, inflation remains a distant worry, however.

 

7/15: Publishing an interim analysis in The New England Journal of Medicine, Moderna reported its vaccine candidate “elicited robust neutralizing antibody results.” Meanwhile, economic activity increased in almost all districts of the Federal Reserve, yet remained well below pre-pandemic levels, according to the latest Fed Beige Book.

 

7/16: Avoiding a recession, China registered a 2Q GDP growth of 3.2%, driven largely by industrial production despite anemic retail sales.  Indicative of a problematic job recovery, U.S. reported stubbornly elevated continuing jobless claims of 17.34 million.  Separately, retail sales in the U.S. rebounded for a second straight month in June, albeit at a meager annual rate of 0.3%.

 

7/17: According to the University of Michigan’s preliminary July survey, consumer sentiment receded more than expected, in conjunction with the renewed surge in coronavirus cases.

 

 

Heard on the Street:

“The investing challenge may well shift in the months ahead from riding an exceptional wave of liquidity, which lifted virtually all asset prices, to steering through a general correction in prices and complex individual nonpayments… Liquidity-driven rallies are deceptively attractive and tend to result in excessive risk-taking.”

— Mohamed El-Erian of Allianz, in an op-ed in Financial Times on 7/13/2020

 

“There are clear signs that the longer-term damage is beginning to mount, with permanent layoffs beginning to climb, and the flow of workers from employment to unemployment still elevated.  Moreover, absent a vaccine, the need for ongoing physical distancing will prevent a full recovery.”

— Michael Pearce, senior U.S. economist at Capital Economics as quoted by CNBC on 7/16/2020

 

 

Longer Game:

With the US’ formal rejection of China’s maritime claims in the South China Sea, Prof. Minxin Pei of Claremont McKenna College argues the convergence of added pressures may spell a tumultuous period for the world’s second largest economy.

 

Is a regulatory reckoning coming for the Mount Rushmore of Big Tech–Apple, Amazon, Google, Facebook—whose combined market value exceeds $5 trillion?

 

 

Bonus:

According to Bank of America’s monthly survey of 210 institutional investors as of July 9^th, U.S. tech stocks remain the most “crowded trade,” along with added allocations to pharmaceuticals, cash, and commodities.

Top News:

7/06: Global equity markets took cues from China, where a bullish editorial in state-run media sent the Shanghai Composite Index soaring 5.7%.  Separately, June’s ISM Non-Manufacturing Index, reflective of the all-important service sector, saw the first expansion in activity since March. 

 

7/07: Novavax announced a $1.6 billion investment from the federal government, joining seven other candidates in the public-private partnership to produce a vaccine.

 

7/08: Registering yet another single-day high of newly confirmed Covid-19 cases, the U.S. has reported about 60K new cases on average over the past 5 days, itself also a record.

 

7/09: While trending lower, the weekly jobless claims report remains disheartening; for the 16^th week in a row, new applications for benefits exceeded 1 million.

 

7/10: The Producer Price Index unexpectedly declined in June owing to ongoing meek demand.  Nevertheless, investors cheered as Gilead released more encouraging data on its investigational antiviral.

 

Heard on the Street:

The tug-of-war between governmental stimulus, re-opening progress, vaccine hope and market valuations continues to grip analysts:

“While the pace of reopening will slow, there is little appetite for the sort of extreme lockdown measures that were implemented in March. The U.S. Congress will ultimately extend fiscal support for households and firms. Around the world, both fiscal and monetary policy will remain highly accommodative, which should provide a supportive backdrop for stocks.”

— Peter Berezin, chief global strategist at BCA Research as quoted by MarketWatch on 7/06/2020

 

“Barring a big shock, it is improbable to think of a trading range for the S&P 500 in the 2,500-3,000 area, but more likely in the 2,700-3,200 vicinity as monetary policy will be in place to prevent a 20% or greater decline… We envision volatility for equities as good news is being priced in and problems are being overlooked.”

— Tobias Levkovich, Citi’s chief U.S. equity strategist said, according to MarketWatch on 7/07/2020

 

Longer Game:

In its efforts to prop up market confidence and ensure smooth flowing of credit, the Federal Reserve has increased its balance sheet to $7 trillion, three times the size at the height of the Great Recession.  This unprecedented ballooning may precipitate: 1) displacement of the U.S. dollar as the world’s reserve currency (Ray Dalio of Bridgewater Associates), and 2) distortions in how assets are valued (Dalio and Jeffrey Gundlach of DoubLine Capital).

 

Bonus:

Lancet published a large-scale study in Spain, which showed herd immunity through natural infection was “unachievable” as a strategy against Covid-19.

Top News:

6/29: Based on contract signings, pending home sales jumped 44.3% in May, reversing two straight months of decline.

 

6/30: While remaining well below pre-pandemic levels, the Conference Board Consumer Confidence Index showed better than expected improvement in June.

 

7/01: Pfizer and BioNTech announced “encouraging” preliminary data on their joint vaccine candidate.  Separately, U.S. manufacturing activity in June expanded for the first time since February.

 

7/02: Reflecting data as of mid-June, the US Labor Department reported a stronger than expected monthly employment situation.  However, excessive optimism was tempered by the latest increase in weekly continuing jobless claims (6/27 report).

 

7/03: Reaching yet another grim milestone, U.S. reported a new all-time high for Covid-19 cases recorded in a single day.

 

Heard on the Street:

“The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus. A full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities… In March, we lowered our policy interest rate to near zero, and we expect to maintain interest rates at this level until we are confident that the economy has weathered recent events and is on track to achieve our maximum-employment and price-stability goals.”

—  Federal Reserve Chairman Jerome Powell in House committee testimony on 6/30/2020

 

“We are in a much better place right now than we were at the end of last quarter. We started the recovery with two strong months here of the recovery in data for May and June. And we also have a lot of policy support on both the monetary and the fiscal side. So the conversations we’ve been having is to start to take a bit more risk in the portfolio, being a bit overweight equities versus bonds, starting to think about cyclical sectors and regions within equities, starting to think more about corporate credit on the bond side. But at the same time we’re also thinking [that] the second half is not going to be easy so we want to avoid the extreme of going to overweight risk.”

— Gabriela Santos, global market strategist at J.P. Morgan Asset Management as quoted by CNBC on 6/30/2020

 

Longer Game:

Public finance observers are beginning to assess the economic impact of Covid-19 on states and local governments. A sobering Cleveland Fed analysis predicts cuts in essential services relied upon by most Americans (here for an abbreviated treatment of study).

 

Bonus:

In an interview with the Journal of American Medical Association, Dr. Anne Schuchat, principal deputy director of the CDC, provided a stark assessment of where the U.S. stands in the current epidemic.  She warns, “We are not even beginning to be over this.” 

Top News:

6/22: With existing home sales in May down 26.6% annually, the largest decline since 1982, the National Association of Realtors is hopeful that the cyclical low may have been reached.

 

6/23: May’s rebound in new home sales bolstered expectations of a housing recovery, given the tight supply of existing homes for sale, low rates, and pent-up demand.

 

6/24: Following fresh highs at the NASDAQ yesterday, investors paused to consolidate gains in light of new Covid-19 cases, IMF’s further downward projections for the global economy, and renewed trade tension with Europe.

 

6/25: While both sequentially lower, stubbornly high numbers of new and continuing claims were confirmed by the weekly jobless claims report.  Separately, May’s durable goods orders snapped two straight months of decline as states initiated gradual loosening of social distancing measures.

 

6/26: The Fed ordered moves to preserve the capital of major U.S. banks, after its annual “stress tests” showed the group would collectively lose about $700 billion in a worst-case scenario.  Meanwhile, a lower final reading in the University of Michigan’s June consumer sentiment survey, a dip in personal income last month and the halting of reopening plans by some states kept bulls in check.

 

 

Heard on the Street:

“Overall we see the second-wave and U.S. election stories as contributing to market volatility as headlines feed investors’ hopes and fears about the speed and strength of the economic recovery. But it is the Fed story that will endure over the medium term.”

—  Mark Haefele, CIO of UBS as quoted by MarketWatch on 6/22/2020

 

“Bubbles are always an issue, and I do keep my eye on it, but I am just not seeing things that are on the same magnitude as what happened in the late 1990s, the so-called dot com bubble that blew up on us and then the much more serious housing bubble in the mid-2000s.”

— St. Louis Fed President James Bullard in a Bloomberg TV interview on 6/23/2020

 

“Although the Nasdaq hit a new high and has been on a spike, less than 50% of its constituents are trading above the 200-day moving average. That’s the biggest divergence since 2001… It’s hard to paint a rosy picture when that’s your classic story of the generals advancing and the soldiers falling behind. I think you add the virus stuff to more attention given to these technical divergences and sentiment being stretched and you have a recipe for a pullback.”

— Liz Ann Sonders, Charles Schwab chief investment strategist as quoted by CNBC on 6/24/2020

 

“I think the market is probably a little ahead of itself at this time, because I still believe we are witnessing real tragedies in the small and medium businesses… The most important question I ask everybody is: do you believe earnings are going to be in 2021 at least as good as in 2019? And only a fraction of business leaders believes their business will be as robust as in 2019. But the marketplace is not saying that.”

— Larry Fink, CEO of BlackRock as quoted by CNBC on 6/25/2020

 

 

Longer Game:

In a webinar sponsored by the CFA Institute, Prof. Elroy Dimson of Cambridge University provided a sobering outlook of diminished real returns of only 2% for a “typical” 60/40 (stocks/bonds) portfolio, based upon his analysis of investment returns in 23 different countries spanning 120 years through 2019.

 

Mohamed A. El-Erian, chief economic adviser at Allianz, lays out priorities for domestic policymakers in a world still “heavily influenced by US economic growth, financial stability, and policy spillovers.”

 

 

Bonus:

Contrary to the expectations of some, a Chicago Fed study finds that those currently collecting unemployment benefits search for work at least twice as intensely as those who have exhausted their benefits.

 

According to a Deloitte report, US oil independence has been dealt a major setback as the shale industry is expected to write down $300 billion in assets, due to “low commodity prices, reduced demand, capital constraints, debt loads, and health impacts of COVID-19.”

 

‘Cuz they say two thousand zero zero party over,
oops out of time
So tonight I’m gonna party like it’s 1999

— Prince

 

Recently, considerable ink has been spilled on the explosion of new accounts at major online brokers during 1Q when the US stock market tanked.  One can be forgiven for a nagging sense of “déjà-vu,” however superficially reminiscent of the heyday of the ’90s dot-com bubble. 

 

This heightened interest from mom-and-pop investors has engendered unequivocal consternation among some veterans.  Given the market performance since the March low, it is not difficult to imagine whether their warning were blissfully ignored.  Indeed, unprecedented fiscal/monetary support anchoring investor sentiment and momentum/trend investing appears to have overridden stock valuation concerns and economic worries, for now at least.

 

Setting aside the documented difficulty (here, here) of achieving sustainable success in short-term trading, I believe a disciplined examination of the following should be done before committing to investments of any duration:

 

• What is the purpose? (e.g., speculative trading vs. longer-term funding plans)
• Why is the investment appropriate?
• How can risks be mitigated? If not, what are the implications of downside risks?
• What are the entry/exit points? (The intuitive “buy low/sell high” adage is but one permutation.)

 

Investing has always involved divining the future, itself riddled with variables.  Whereas previously the impact of such unknowns could be estimated within a reasonable framework of analysis, the current environment provides no easy answers.  So, before accepting a “hot” investment tip at a party next time, just pass the nuts instead.

 

Top News:

6/15: The US stock benchmark indices reversed earlier losses after the Federal Reserve, acting as a backstop, said an existing stimulus program will now include purchases of individual corporate bonds.

 

6/16: A smattering of positive treatment headlines in the Covid-19 fight (here, here & here), coupled with a bigger than expected turnaround in May retail sales, cheered investors.

 

6/17: Spikes in new coronavirus cases in select states and China brought reopening concerns to the fore.

 

6/18: Decelerating trends notwithstanding, both new and continuing jobless claims remain at persistently high levels as 29 million Americans claim benefits in all programs. Separately, Conference Board’s Leading Economic Index for May registered the first uptick since January.

 

6/19: Optimism regarding re-opening efforts was tested again as a resurgence in new Covid-19 cases in some states prompted a warning from the WHO.

 

Heard on the Street:

“The levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery.  Much of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it. Until the public is confident that the disease is contained, a full recovery is unlikely… We are committed to using our full range of tools to support the economy in this challenging time.”

—  Fed Chairman Jerome Powell in semiannual testimony to Congress on 6/16/2020

 

“At the Federal Reserve, I expect our current stance of highly accommodative monetary policy to continue until the economy has largely recovered what’s been lost due to the virus… But monetary policy can’t help the U.S. economy reach its full potential on its own. We also need fiscal policymakers to commit to sustained investments in our economic future… Now let me be clear: I’m not just advocating for increased public spending and debt. The composition of spending is crucial. We need to focus on investments that leverage the talent of everyone and contribute to the economy’s long-term growth prospects.”

— Mary Daly, San Francisco Fed President in remarks to National Press Club on 6/15/2020

 

Longer Game:

Taking stock of the nation’s preoccupation with domestic woes, Richard Haass, president of the Council on Foreign Relations, argues the US can ill-afford to ignore percolating and recurring geopolitical and environmental issues with global implications.

 

Stephen Roach, ex-chairman of Morgan Stanley Asia, predicts a 35% depreciation of the US dollar, owing to its shrinking share of global trade and importance as a reserve currency.

 

Bonus:

As of 6/11/2020, a Banc of America Global Fund Manager Survey of 211 institutional investors reveals 78% of respondents believe the stock market to be “overvalued,” while 53% say the comeback from the March lows is a “bear market rally.”

Top News:

6/08: Officially declaring an end to the longest economic expansion in U.S. history, the National Bureau of Economic Research said the country has entered a recession of unknown duration.

 

6/09: A May survey by the National Federation of Independent Business (NFIB) showed a rebound in optimism amongst small business owners.

 

6/10: On the heels of a muted Consumer Price Index report, the Fed voted to keep benchmark rates near zero, a dovish stance likely to be maintained through 2021.

 

6/11: Pace of both initial and continuing weekly jobless claims trended lower, even though 44 million Americans have filed for benefits since the pandemic’s onset.  Meanwhile, allaying some deflationary concerns, the Producer Price Index snapped three straight months of decline, as food and energy prices increased in May.

 

6/12: Governors of Oregon and Utah have paused their respective states’ phased reopening efforts as they investigate recent increases in new coronavirus cases.

 

Heard on the Street:

“Over any limited segment of the market cycle, it doesn’t really matter whether the beliefs of investors are well-informed or wildly misguided. It also doesn’t really matter, in the short-run, whether market valuations are consistent with strong positive long-term returns or with negative ones. In the short-run, what matters is whether investor psychology is inclined toward speculation or toward risk-aversion.”

— John Hussman of Hussman Investment Trust in a note, 6/08/2020

 

“As states begin to reopen, small businesses continue to navigate the economic landscape rocked by COVID-19 and new government policies. It’s still uncertain when consumers will feel comfortable returning to small businesses and begin spending again, but owners are taking the necessary precautions to reopen safely.”

— Bill Dunkelberg, chief economist at NFIB as quoted by MarketWatch, 6/09/2020

 

“Given the magnitude of the rally, it would shock me if we had a one day sell-off and that’s it.  The stocks that are up the most from the lows are still the risk-on, high beta, value, small-cap stocks. They’re still the big winners and I would suspect that there’s more pain to come near-term before the market clears out kind of this excessive speculation that we’ve seen recently.”

— Andrew Slimmon of Morgan Stanley Investment Management in a CNBC interview, 6/12/2020

 

Longer Game:

Lee Hsien-Long, the prime minister of Singapore, a tiny nation long accustomed to finessing geopolitics, believes whether Pax Americana can be sustained will rely upon how the US and China interact in a shifting global order.

 

Bonus:

While characterizing COVID-19 as “his worst nightmare,” Dr. Anthony Fauci still expects “more than one winner in the vaccine field, because we will need vaccines for the entire world—billions and billions of doses,” according to excerpts from the Biotechnology Innovation Organization’s virtual conference.  In the meantime, given there’s much scientists don’t know yet about immunity to COVID-19, concerns are rising over reports of new infections in select states.

 

OECD released its semiannual report, predicting worldwide economic contraction of at least 6% in 2020, and outlining two scenarios for recovery in 2021, depending on course of the pandemic. 

Rashomon, an allegory about the fungibility of truth, is a favorite in the oeuvre of filmmaking legend, Akira Kurosawa.  As the S&P 500 rallies to within 6% of its all-time high, even while almost 21 million American remain unemployed, it is easy to view this apparent disconnect as if one were re-watching the Japanese epic. 

 

Unabashed bulls would have us believe that the market is a perfect discounting mechanism, to which economist Paul Samuelson once famously quipped, “The stock market has predicted nine of the last five recessions.”

 

Beyond uncertainty relating to the economy, public health, trade relations, not to mention the election later this year, I suspect there are other distortions in the market, including: 1) the “Fed put,” namely the belief that the central bank will prop up asset prices, as implied by its recent action; and, 2) investor psychology in the form of FOMO, which some might term “greed.”

 

Regardless of your positioning in the market, it bears remembering investors tend to overshoot both on the downside and the upside, as recent developments have reminded us yet again.  Complacency cannot be a luxury, especially now.

 

Top News:

6/01: While marking the third straight reading below 50.0%, indicating contraction, ISM’s Manufacturing Index climbed to 43.1% from an 11-year low of 41.5% in April

 

6/02: In an interview with JAMA, Dr. Anthony Fauci, who’s been hopeful of a vaccine by year-end, cautioned against excessive optimism on its “durability.”

 

6/03: Shrugging off continuing social strife, investors sustained the recent upward bias in US equities as service sector data bolstered hope that economic damage may be mostly done, for now.

 

6/04: Ahead of tomorrow’s jobs report, worse than expected continuing weekly unemployment claims suggest the pace of rehiring may not be as robust amidst a patchwork of reopening plans at local levels.

 

6/05: Defying market expectations by a wide margin, May’s payrolls report showed a surprising recovery of 2.5 million jobs, notably in the leisure and hospitality sector. 

 

 

Heard on the Street:

“Everyone can see and feel that this is different and can sense the bizarre nature of the market response: we are in the top 10% of historical price earnings ratio for the S&P on prior earnings and simultaneously are in the worst 10% of economic situations, arguably even the worst 1% … There are no certainties but there are probably still some better and safer themes. Caution and patience are likely to be two of them.”

— Jeremy Grantham, co-founder of GMO, as excerpted from the firm’s quarterly review

 

Bonus:

A May survey, albeit of limited sampling size, shows global CFOs are less than sanguine on 2020 business prospects.

In response to last week’s inaugural WuRevue update, a wise client commented, “We don’t yet know what we don’t know.” 

 

This simple yet poignant remark serves as a stark reminder of the importance of intellectual humility, as well as the need to guide clients even more intelligently in a market environment littered with unknowns, a topic covered extensively by Howard Marks, co-founder of Oaktree Capital Management in his widely read memo entitled “Uncertainty.”

 

Top News:

5/26: Investor sentiment was buoyed by vaccine development endeavors underway at Novavax and Merck.

 

5/26: Halting two straight months of decline, Conference Board Consumer Confidence Index^® showed a slight uptick, anchored by stronger short-term outlook for income, business, and labor market conditions.

 

5/27: Looking past yet another flashpoint in Sino-American relation and pessimistic monthly survey of economic conditions by the Fed, investors pushed market averages to milestones not seen since March.

 

5/28: NY Fed’s Weekly Economic Index hinted economic activities appeared to have bottomed out in early May.

 

5/29: Though lower than expected, University of Michigan’s May Consumer Sentiment Index saw a modest improvement, while the Commerce Department reported American households saved more in April as spending has been restrained amidst ongoing economic challenges.

 

Heard on the Street:

“Sleeping well? Better than I was in late February and early March, let’s just put it that way… I would worry almost more that a second outbreak would undermine confidence… A full recovery of the economy will really depend on people being confident that it is safe to go out and safe to engage in a broad range of economy activity.”

— Fed Chairman Jerome Powell in a Princeton-sponsored webinar on 5/29/2020 

 

“We suspect that the sharp rise in stock markets has been driven by a closing of shorts. From here, a move higher will need new longs and inflows.”

— Robert Buckland, chief global equity strategist at Citi told MarketWatch on 5/29/2020

 

The Longer Game:

As the world economy’s bifurcation into two spheres of influence appears preordained, a key area of competition in the US-China marathon is establishment of technological infrastructure and industry-setting standards.  With China’s new 15-year project named “China Standards 2035,” the follow-up to its “Made in China 2025” plan , the Brookings Institution hosted a webinar assessing the current landscape and trajectory.

 

Bonus:

True or False? Efforts to re-open US economy is complicated by Twitter bot disinformation campaigns, according to researchers at Carnegie Mellon University.

Top News:

5/17: Fed Chair Powell sees economic recovery in 2H of 2020, despite temporary depression-like unemployment.

 

5/18: Encouraging preliminary statement by Moderna on its Phase 1 coronavirus vaccine trial lifts investor confidence, even as such optimism is questioned.

 

5/19: More than 2/3 of institutional investors remain unconvinced of current market rally.

 

5/20: The Fed’s April meeting minutes show deep concern for not just the current state of US economy but what lies ahead as well.

 

5/21: As of May 9^th, 25.1 million Americans filed continued unemployment claims, 2.5 million more than the week prior.

 

5/22: US-China tension escalates beyond trade and geopolitics as Congress seeks to limit Chinese companies’ access to US capital markets by threat of delisting them on exchanges.

 

Heard on the Street:

“We don’t love the risk-reward right now in the stock market… Only 15% in the S&P 500 is trading above its 200-day moving average. So, you’ve had a lot of investors crowd into a specific perceived area of safety in the market — large cap growth stocks.  Look at cyclicals. Look at small caps, banks, transports. All the areas that might indicate a more durable recovery in the economy. They’re all stuck below 2018 lows.”

–Bryn Mawr Trust’s Jeffrey Mills in a 5/15/2020 CNBC Interview

 

The Longer Game:

Ruptures within the US-China symbiotic relationship are feared to have lasting impact beyond the current election cycle and COVID pandemic.

 

 For Your Consideration:

It is understandable that investors should feel paralyzed as debate rages on about the market’s direction.  Without committing to any camp, one can consider two investment management techniques in the interim as part of the ongoing portfolio review. 

 

First, tax-loss harvesting in taxable accounts can help to use losses from stock sales to potentially offset gains and to even get a modest income tax deduction. 

 

Second, looking beyond the immediate horizon towards retirement, a Roth IRA conversion can make sense, especially if you are anticipating lower income this year and/or you expect income tax rates to be higher in retirement (e.g. as a result of the widening federal deficit stemming from stimulus spending). As these portfolio adjustments are fraught with tax consequences, a CPA or qualified advisor should be consulted.

 

Bonus:

Data kept by Kronos, which makes digital time-clocks that workers use to check in and out of work at some 30,000 companies across the U.S., suggest the pace of job recovery may be slower than hoped.