Heads & Tales – December 2020 Commentary

“Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence.”
-John Adams, the 2nd President of the United States

Investors may not be currently celebrating all aspects of the current state of their lives, but it would be understandable if they were to pause to tap their pocketbooks an extra time or two and proffer a smile. Three months ago, investors were celebrating near breakeven, but the 4th quarter made it a year of some cheer with the average 60/40 equity/fixed income investor up 11.2% for the quarter and 13.7% for the year.

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At times, from the perspective of portfolio management, its best to spend the entirety of the twelve months dancing with “the one what brung you” but for this year’s 4th quarter it would have been an excellent idea to “change partners”. The S&P 500 was +18.4% for the year and +12.1% for the quarter. Not bad. Small cap stocks though were +31.3% for the quarter but a more modest +11.3% for the year. Financial stocks were +23.2% for the quarter but -1.7% for the year. Technology was up 11.8% for the quarter matching the return of the S&P but their +43.9% for the year more than tripled it.

Inflection points, as they relate to financial markets, are particularly challenging because they happen very infrequently and yet when they do, a great deal that we found to be useful in understanding the past is of limited value in our understanding of the future. We need a new playbook because we’re playing in a different game.

So, lets pause and entertain a number of “what if’s”. What if both inflation and interest rates are no longer going to remain at these levels but will instead be heading higher? What if we are poised to experience a migration in the “balance of power” from the financial markets to the real economy resulting in the returns of the financial markets becoming increasingly dependent upon the return those assets earn in the real economy? What if we are entering into a renaissance of work where working people earn more and capture more of the wealth that they create?

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Lest the commentator be thought to have lingered too long at the holiday punch bowl, lets add some facts to support this forecast of future reality. Central Bankers. The good news is that they do have the ability to learn from their mistakes. The better news is they’ve made plenty, so they’ve learned a great deal. After the Global Financial Crisis Ben Bernanke set out to save the financial system. And he did. Then he set out to help the economy by lowering interest rates believing that lower rates would lead to an increased demand for borrowing. But they didn’t as households were more focused upon survival than lifestyle enhancements. So, all that money the Federal Reserve, and other central banks around the world, created got stuck on their balance sheets instead of flowing into the real economy.

The United States Government is aware that as it seeks to carry the economy through the pandemic the key to its success will be to migrate money from central bank balance sheets to household bank accounts. This year the budget deficit will be our friend as it will create additional economic demand as well as contributing to the wave of liquidity that will support the financial markets in the year ahead. That increased amount of money in your pocketbook? Spend some of it!

Mark H. Tekamp January 3, 2021

Rotation Flirtation – November 2020 Commentary

“Change is the law of life. And those who look only to the past or present are certain to miss the future.”

– John F. Kennedy

November may not have included Christmas, but it certainly left investors feeling thankful. The best single month for the Dow Jones Industrial Average since 1987. The best November for the S&P 500 since 1928. The DJIA was up an eye watering 12.14% for the month, the S&P 10.95%, small cap stocks 18.17% and foreign developed markets 15.26%. At the end of October there were pockets of green surrounded by nearly equal areas of red. One month later global stock markets look like the Emerald Isle.

The four strongest sectors leading the S&P higher for the month were, in order of their performance, Energy (+25.85%), Financials (+16.90%), Industrials (+15.97%) & Materials (+12.51%). Interestingly, since 1960, there have been only three other periods when these four sectors were simultaneously up over 10% during the same two-week period, 1973, 1981 and 2008. Those prior three instances occurred either late in recessions or early in an expansion. On average the market was up 24.3% one year later. Perhaps in 2021 Christmas will be a twelve-month holiday!

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Much commentary on the market has sought to explain November’s gains through the perspective of public policy responses to the pandemic such as the rolling out of vaccines, the possibility of additional stimulus or other means of encouraging economic activity but the numbers may actually be telling us the economy is not only not on life support but actually dancing. Corporate earnings in the 3rd quarter were HIGHER than those of the 4th quarter of 2019 and are now at their highest levels in history. Home sales are UP 41.5% versus a year ago and 29.1% from January. The inventory of homes available for sale has collapsed from 6.8 months in April to 3.3 in October, the LOWEST level on record going back to 1963. New orders for durable goods, a key measure for business investment, are up 43.7% from their April lows and are now just 2.2% below their February pre-pandemic levels. Behind the dark print of most news headlines lies a great deal of positive economic sunshine!

Proponents of portfolio diversification have at times in recent years felt like a traveler waiting at the station for a train whose arrival seems to be perpetually delayed. $10,000 invested in the S&P 500 ten years ago is now worth $39,447. Had those funds been invested in foreign developed markets that same $10,000 would have grown to only $17,425. Invested in the half of the S&P described as value stocks that amount of money would have grown to $28,548, not bad but significantly less than the $45,777 reward for having invested in the other half of the S&P representing growth stocks. US small cap stocks performed at a rate equal to three-fourths that of the S&P growing to $27,661. Technology stocks would have grown to $57,235 and Energy stocks would have SHRUNK to $7,676.

November delivered to investors the most dramatic change in stock market leadership since 2008. S&P value stocks were +12.88% versus growth’s +9.70% though their year to date returns are -2.07% and 28.24% respectively. The S&P’s 10.95% return for the month was exceeded by foreign developed markets 15.26% but the S&P is +14.02% versus foreign 5.33% for the year. Energy stocks were +28.03% for the month more than doubling technology’s 11.43% but the latter is +36.08% for the year while energy stocks are still in the basement -36.47%. Is the market changing its melody? Stay tuned!

Mark H. Tekamp December 2, 2020


Know Member – October 2020 Commentary

“When we make the unfamiliar familiar, make the unknown known, make the uncomfortable comfortable…we can then expect the unexpected” – James K. Glassman 

The writer of the article in Friday, October 30th’s Wall Street Journal was clearly mystified. Even the headline for the article was mystifying. “Pandemic Brings New Restrictions on Restaurants and Retailers as Demand is Rising”. The article went onto include the following passages. “Surge in U.S. Coronavirus cases comes as more people are dining out and stores struggle to find workers ahead of holidays. Outback Steak House’s president says the chain hasn’t seen a drop in dining demand since Covid-19 case counts started climbing again this fall.”

Most commentaries on the outlook for the economy are as chilly as the looming Winter weather. Following are some quotes from someone who is generally considered to be an economic optimist. “Challenging times abound”, “stimulus tailwinds are fading, and economic growth appears likely to slow down until more stimulus is passed and/or a vaccine is widely distributed.” Most American’s believe in their ability to pursue what they believe to be reasonable precautions to safeguard their health and that of others but Americans want their lives back and it’s a pretty good wager that happens because, as the above quotes from the Wall Street Journal indicate, it is already happening.

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How badly was our economy damaged due to the public policy response to the pandemic? In the second quarter of this year the reported decline was 34.3% but that was a one-quarter figure annualized. Americans could be forgiven for being under the impression that our economy had shrunk by a full third in three months. For some clarity, it may be helpful to look at the size of the US economy over the prior three quarters for a more accurate measure of where we were and where we are. At the end of 2019 US GDP was at 21.73 trillion, at the end of 2020’s 1st quarter 21.54 trillion, 2nd quarter 19.41 trillion (a decline of 2.04 trillion or 9.5%) and at the end of the 3rd 21.16 trillion (an increase of 1.64 trillion or 8.4%). So that leaves us down $570 billion through the end of the 3rd quarter of this year or 2.6% so if the 4th quarter number is one-third of the 3rd quarters we’ll be back to where we started the year.

Friday’s Wall Street Journal also included the cheery headline “Market ends worst month since March”. How bad was it you ask? Well, the venerable Dow Jones Industrial Average was down 4.53% for the month and is down 5.38% for the year. The S&P 500 fell 2.66% but is still positive 2.77% for the year. Something curious though happened in October’s market. Mid-cap stocks were UP 2.17% and Small Cap stocks 2.58%. This looks more like a sector rotation than a flight to safety. US Treasury yields were up modestly but high yield bond yields declined. Europe was down 5.62% but Asia was up 4.81% perhaps providing evidence that it may not be the pandemic that is driving markets so much as market’s fear of how public authorities will choose to respond to it. Emerging markets were up 2.04% and Frontier Markets, which are the highest risk equity markets on Earth, were up 4.19%. For 60% equity/40% fixed income portfolios returns were a negative 1 ¾% leaving portfolio returns year to date positive though barely so.

Christmas is coming. The best is yet to come! And yes Virginia, and for you who live in other states, there will be a pandemic pause!

Mark H. Tekamp October 31, 2020

Vive la Resistance! (Not)! – September 2020 Commentary

“Don’t try hard to explain, but try hard to prove it.” – Abhiyanda B

Observers of the market have long been divided between those who believe the stock market is a mirror reflecting the image of the state of the economic and financial environment to the world, the fundamentalists, and those who believe the market ultimately contains within itself its own explanation of market movements, the technicians. Fundamentalists speak in intelligible terms about economic growth, increases in corporate profits etc. Technicians speak a language of their own employing phrases such as daily moving averages, support and resistance and other such esoteric terms.

September was a month that market technicians live for. In late April, almost one month to the day from the market low in March, the S&P 500 broke above the average level of its past fifty trading days and while coming close to trading below that level in late June it passed that particular test and the market continued onwards and upwards reaching its high for the year on September 2nd. From that point, the market experienced its most notable decline in the past six months falling 9.6% by the market close on the 23rd. The market then recovered modestly by almost 4%, sufficient to lift the market back to, guess what, its nearly exact fifty day moving average. Technicians view this as “the classic sign of a coiling market” meaning that in the very near future the market will likely reveal its trend for the next several months by either successfully clearing that level which is referred to as “resistance” (akin to a ceiling) after which the market likely continues to move higher and that level transforms itself into a “floor”, a level below which the market is unlikely to decline below, or the market will decline further and that level will become a “ceiling” for the market while it works its way lower. Pretty exciting stuff, right?

Back in the real world of earth, sun and sky the economy continues to mend quite nicely. The “glass half empty” crowd pointed to the non- farm payrolls increase of 661,000 for September as a disappointment but furloughed public school teachers, the numbers for whom appear in the public payrolls figure, obscured the good news of an 859,000 increase in private sector payrolls, a BETTER than expected number representing a 54% recovery of those jobs lost due to the COVID shutdown. The ISM manufacturing index number released on October 1st also offers evidence of a continuing strong economic recovery. The “half empty” crowd will counter that unemployment benefits are about to terminate and the likely absence of a COVID virus vaccine this year. Nonetheless, the balance of evidence reveals that the V-shaped recovery lives and will get stronger before it doesn’t.

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Market participants get to choose their headlines. September was the weakest for that month in almost ten years with the S&P declining 3.80%. Nonetheless, the S&P was up 8.93% for the 3rd quarter and with its following a strong 2nd quarter, the market has experienced its best two-quarter performance since 2009. The smart trade for the month with perfect hindsight would have been to sell one’s winners and add the proceeds to one’s losers, excepting the woebegone energy sector which wouldn’t have any news if it weren’t for bad. S&P growth stocks were down 4.7%, twice value’s 2.40%, though growth is up 20.6% for the year while value is down 11.40%. Foreign developed and emerging markets also outperformed, falling back “only” 2.20% though both are negative for the year 5.24% and 1.97% respectively. Bonds did their job by returning approximately 1.50% for the month offsetting the 3.30% negative equity return leaving the typical 60 equity 40 fixed income portfolio -1.78% for the month and positive 3.80% for the year.

Mark H. Tekamp October 3, 2020

The Apple of Your I Shares – August 2020 Commentary

“The high demand for the asset is generated by the public memory of high past returns, and the optimism those high returns generate for the future. The feedback can amplify positive forces affecting the market…” -Robert Shiller


The headlines of the stories detailing the stock market’s return in the month of August are the material of which investor’s fondest summer dreams are made. “Best Five Month Stretch in 82 Years”. “Stocks Close Higher in Another Historic Performance.” “S&P Extends Their Winning Streak With Another New All-Time High.” Indeed, August’s 7% return increasingly makes this year’s market low of -30.75% on March 23rd seems increasingly like an episode in a season of some other year.

At the end of June, the market was still off 4% but with July’s 5.6% return and August’s contribution the S&P is now up 9.7% for the year. For investor’s with a 60% equity and 40% fixed income and cash allocation the first quarter offered a 15 ½ % loss succeeded by the second quarter’s 16% gain. The first two months of the third quarter have provided a 7% positive return quarter to date so most investors have entered “the green zone” in August for the first time in 2020 since late February.

Investors understandably tend to focus upon the “headline numbers” as a source of much of their understanding of the stock market. The Dow Jones Industrial Average and the S&P 500 are the numbers most of us hear or read about and use to gauge the nature of “the stock market weather”. Since the Global Financial Crisis of 2008-2009 though, investors have been living through markets in which the “rising tides” of those markets have lifted a good many of the vessels (stocks) traveling upon it a great deal less than others.

In focusing upon the market at large we sometimes forget that it is company’s earnings that are the ultimate driver of individual stock returns and that those earnings are very much determined by the dynamics of the industry in which that company operates. Block Buster would have got you “busted” and Amazon gets you, well, just about everything, including extraordinary stock market returns. The companies composing the US market are divided into eleven separate industry groups and the variance in the rates of return of the company’s inhabiting those separate industries year to date have been truly extraordinary with five of the eleven still posting negative returns through August (ranging from Energy – 39% to Industrials – 3.2%) and six positive (ranging from Materials +4% to Technology +36%).

The influence of each of the eleven industry groups upon an  index such as the S&P 500 varies dramatically based upon the market values of the company’s inhabiting those groups with the smallest, Energy, representing 2.33% of the index and the largest, Technology, 28.76%. Thus, an equal per-centage change in the performance of Technology stocks will have a 12 1/3 greater impact upon the return of the index than would Energy.

The weightings of the industry groups also change significantly over time due to the evolution of our national economy and the market’s degree of affection for a specific market sector. For instance, Technology’s and Energy’s weighting in the S&P in 1995 were 9.39% and 9.14% respectively. That year investors would have been wise to have sold their Energy stocks and reinvested the proceeds into Technology stocks as by 1999 those respective weightings had changed to 29.2% and 5.5%. Investors though, with perfect foresight, would have also been wise to have reversed that particular trade as by 2008 Technology’s weighting  declined by almost 50% to 15.4% and Energy’s share increased by almost 40% to 13.1%. When it comes to the market the only constant is change!

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This year’s market though has taken the ebb and flow of the fortunes of the various market sectors and elevated them to a level rarely, if ever, experienced. Technology stocks are positive 36% year to date and represent just over one-quarter of the market. The market (the S&P 500) is positive 9.74% so in the absence of the contribution of Technology there is very little return at all being contributed by the remaining three-quarter’s of the market!

Apple’s weighting in the Technology sector is 17.7% and the stocks return year to date through end of August is a sizzling 76.6% contributing 13.5% or almost 40% of the 36% return of the Technology sector. Truly for 2020 to date Apple is “the apple” of your I shares or Vanguard or other Exchange Traded Funds (ETF’s) that many investors are using as the source of their stock market exposure.

Mark H. Tekamp

September 5, 2020

Bear Pause – July 2020 Commentary

“We can complain because rose bushes have thorns, or rejoice because thorns have roses.”

Alphonse Karr, “A Tour Round My Garden”

Most investors have experienced a journey this past seven months resembling a round trip returning them to where they were at the onset of the year. Since the March 22nd market lows, portfolios with a 60/40 equity-bond allocation have generated a 30% return thereby, thankfully, resulting in their having insufficient time to adopt as their anthem Janis Joplin’s song lyric “sometimes you don’t know what you’ve got ‘till it’s gone”.


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July revealed a disconnect between the economic news and the performance of financial markets. In the three months of the second quarter the S&P 500 was up but at a decelerating rate of 12.7%, 4.5% and 1.8% for each of its three months but in July it reversed course rising 6%. Meanwhile, while new COVID-19 cases in Europe continued to decline to levels close to its disappearance in some countries while levels in the US increased to 50,000 daily representing 25% of the world’s reported cases.

The disconnect carried into the reported economic data with the US economic recovery evidencing signs of deceleration as parts of the US reversed their earlier steps towards the reopening of their economies while the economic data flowing out of Europe indicated their economies recovering at rates now exceeding that of the US. This reversal of fortune may be the source of the news items that captured the attention of market observers as gold made its first new historical high in ten years and the dollar experienced its greatest one month decline since April 2011. Curiously though, in contrast to the US, the equity markets of those very same economies, foreign developed markets, posted negative returns in local currency terms though US investors experienced modest positive returns due to the approximately 4% decline in the value of the US dollar.

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The current investment landscape is littered with additional signposts seemingly pointing in opposite directions. 63.6% of US households are optimistic about their personal finances which is near its high water mark this past ten years but only 21.6% are optimistic about the current state of the national economy thereby seemingly indicating that many of us view the current economic and financial challenges as someone else’s problem. An additional indicator that levels of pessimism about our economy may be exceeding its actual condition is that 79% of US corporations reporting earnings quarter to date are reporting numbers that exceed those expected, the highest “beat rate” of the twenty-one plus years of the 21st century to date.

The S&P 500 is up 46% from its March lows but market sentiment indicators reveal that twice as many investors expect the market to decline rather than continue its recovery. In fact, the indicators show a state of investor psychology that has rarely been so bearish. For twenty-three consecutive weeks bearish sentiment has exceeded bullish. The last time this occurred was in 1987. The six month average for market sentiment indicates twice as much bearish as bullish sentiment for the first time since the Global Financial Crisis on 2008-2009. The interesting difference between then and now is that rather than the market having gone down 40% as it had in March 2009 its up by that same amount.

Confirming that opportunity represents the distance between expectations and reality there have been thirty-seven prior instances where the six month average of bearish sentiment exceeded that of bullish by 12% since 1987. In the following three months the average return for the market was 10.7%, 15.12% in six months and 22.6% one year. NOT ONCE IN THOSE THIRTY-SEVEN INSTANCES WAS THE MARKET LOWER ONE YEAR LATER.


Mark H. Tekamp

August 2, 2020

Division Indecision – June 2020 Commentary

“It is wiser to find out than to suppose.” – Mark Twain

The morning’s Wall Street Journal is a sort of caricature of how similar our current perception of reality resembles that of a clam shell, joined together with a modest amount of membrane but more separate that together. The Dow Jones Industrial futures indicate an opening (this is written prior to the market open on July 6th) positive 382 points or 1.48% but with the day’s headlines including “U.S. Coronavirus Death Toll Nears 130,000 as Infection Rate Surges”, “Coronavirus Hits Nation’s Key Apple, Cherry Farms” and “Behind Oil’s Rise Is a Historic Drop in U.S. Crude Output”.

The division in people’s perception of reality is reflected by a similar division in the market itself. In the current year’s first quarter the S&P 500 was -19.5% but in the second it was +20.5% leaving the index down 3.1% at the year’s midpoint. Hiding behind the market’s near break even performance though was a dramatic variance of fortune among its the eleven industry groups with Energy stocks down 35%, Financial stocks down 23.6% and Technology stocks up 15%. Given Energy and Financial stocks concentration in the Value portion of the market the S&P 500 Value Index is down 15.5% while Technology stocks,  concentrated in the S&P 500 Growth Index, results in that index being up 7.9%.

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Bulls and Bears are united in acknowledging the existence of recovery in the U.S economy but separate in their opinions related to the recoveries durability and rate of increase. Bears point to the seven-day moving average of new Coronavirus cases bottoming at 21,282 on June 9 having increased to 39,662 on June 28, an 86% increase in only 19 days. Bulls point to a similar 84% decline in the number of Coronavirus deaths from their peak on April 19th to their level on June 28th.

Even those not wishing to wade near the hazardous shoals of the politics of the pandemic should be able to agree that if it is not disappearing it is nonetheless migrating as states such as New York and New Jersey which previously experienced the highest levels of lethality have seen substantial declines in those rates while states such as Texas, Arizona and Florida have reversed some of the measures they had undertaken previously to reopen their economies. Also of interest is that the three countries reporting the largest number of virus related deaths, Brazil, Mexico and India, were in April experiencing very low fatality rates while countries such as Spain, France, Japan, and South Korea, which were among those countries first experiencing the pandemic in March and April, two day’s ago on July 4th reported zero virus related deaths.

If opportunity is equal to the distance between perception and reality then is remains quite possible that the opportunity to profit in the equity markets continues to be significantly greater than most believe it to be. Here I’ll draw upon the wisdom of James Carville who, back in the 1990’s, was quoted as telling the then presidential candidate Bill Clinton “it’s all about the economy…”. When it comes to forecasting the prospects for the stock market over the next six month’s I’ll echo Mr. Carville’s sentiments with “amen” and “amen”.

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Our friends at Vanguard have been relatively constructive on the outlook for the U.S. economy these past several months. This past Thursday they forecast a decline in the U.S. unemployment rate to 10% by year’s end. That same day nonfarm payrolls were reported to have risen 4.80 million in June verses an expected gain of 3.23 million resulting in a decline in the reported unemployment rate from 13.3% in May to 11.1% in June. The past two months have seen a recovery of one-third of the payrolls lost in March and April. What if in December of this year the unemployment rate was at 7%? Think that number has yet been fully discounted by this market?

Looking through the rearview mirror at the economic damage caused by the pandemic is still a jaw dropping experience.

The week of May 20th the numbers of individuals boarding outgoing flights was 10% of that of year ago levels. The week of July 1st it was 25%. In February new automotive sales were at an annualized rate of 17 million. In April in was 9 million. In June 13.3 million. For the week of June 28, 2019 9,492 thousand barrels of gasoline were consumed by motorists on a daily basis. For the week of April 24th of this year it was 5,860. For the week of June 26th 8,561. In January of this year 780,000 single family homes were sold in this country. In April 580,000. In May 680,000. These numbers show an economy well on its way to recovery and yet still some significant distance away from the economy we were experiencing at the beginning of this year.
This market wants to go higher. That is a good thing. These have been very difficult times but the future contained in these next several months will be much better. If this is, as I believe it to be, true, then this is something we can all celebrate together.

Mark H. Tekamp

July 6, 2020

Well Fed – May 2020 Commentary


“Chaos is merely order waiting to be deciphered” – Jose Saramago, “The Double”

May was merry for stock market investors as the S&P posted a +4.8% return with both small cap stocks and NASDAQ doing better still with returns of 6.5% and 6.9% respectively. Though March 23rd was ten weeks ago as measured by time it’s 36% distant as measured by the recovery in the market since that date leaving us 11.2% from reaching the all time high (as measured by the S&P) on February 19th. With the additional returns in the market on June 1st and 2nd the 39.3% return represents the largest market gain in 50 days in 75 years. Quite the journey!

The steps taken by the federal government to offset the effects of the shuttering of much of the national economy in March and April have had truly remarkable effects upon economic data resembling perhaps major league hitters participating in a home run derby in a little league baseball park. Consumer spending fell 14% in April. Personal income growth was 10% that same month resulting from households receiving federal checks. Dramatic growth in income and the inability of consumers to leave their homes to spend their windfalls resulted in a 35% personal saving rate. NEVER have numbers remotely similar to these been experienced in the past one hundred years of our national history.

Nobody pays much attention to money supply figures these days but perhaps we should. Historically M2, a measure of money which includes cash, checking accounts, savings and time deposits and money market funds, historically grows at rates between 0 and 10% per year most often hovering near 5%. In the three months up to May 11th the rate of increase was 82%! Essentially, what we’ve experienced this past several months is Quantitative Easing #4 but with this latest version dwarfing the prior three in terms of speed and quantity. What will be interesting is what happens when consumers are free to spend their dramatically expanded bank account balances. And maybe its already starting to happen.

In mid April 100,000 passengers were being processed through airports in this country. We’re now at 300,000. Still a long way from normal but a dramatic recovery nonetheless. Mortgage money is now on offer at a rate of 1.45%. One year ago the rate was 4.00%. Mortgage applications for new home purchases are close to their levels of January and February this year and are 50% higher than their level of five years ago. For the years 2018 & 2019 daily demand for gasoline was between 9 and 10 million barrels per day. In April it collapsed to 5 and we’re now at 7.5. In January the ISM Service Sector Business Activity Index, a measure of the economic health of the service sector, was at 60, a very strong level. In April it collapsed to 25. We’re now just above 40.

Perhaps investors should dial back to their pre-pandemic memories. In 2019 the market was up 22% though corporate earnings were flat lining in the face of tariff wars and the earlier fed rate increases which caused so much tumult in the stock market in the 4th quarter of 2018. From 2009 until late 2015 the fed had kept the Federal Funds Rate at .25%. In December of 2015 the fed increased that rate to .50%. In the following three years the fed would raise rates eight additional times with the rate peaking at 2.50%. By March 3rd of this year the fed had lowered that rate to 1.00% and we’re now back to .25%.


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What the stock market is telling us should be relatively clear if we choose to grasp hold of some perspective. Massive increases of federal spending with most of it representing transfers of borrowed money to US households. Dramatic reductions in interest rates. Historically elevated levels of household savings. Wonder what the level of US economic activity is going to look like through the remainder of this year? Wonder how dramatic the recovery of corporate profitability will be in the 3rd and 4th quarters?

Shifting gears, lets look inside the stock market, the returns of the eleven different industry groups, and what they may be telling us about the course of the evolution of the economy. From the market low of March 23rd until May 13th the three best performing industry groups were Energy +49.43%, Health Care + 31.67% and Technology +30.18% in contrast to the S&P’s return of 26.04%.  Interestingly, those three industries were three of the four sectors posting the lowest relative returns from May 14th through May 29th. The three best performers were Industrials +13.49%, Financials +13.28% and Real Estate + 10.92% with Materials close behind at +10.62% versus the S&P’s return of 7.03%. Connecting the dots we see a recovery in the industrial economy (Industrials & Materials), a booming Real Estate sector and a Banking sector with improving profitability as their margins widen with continuing near zero short term interest rates but with improving demand economy wide lifting intermediate to longer term interest rates.

The stock market? How about 3500 by year’s end? (The S&P 500 closed at 3185.25 Friday, June 5th)

Mark H. Tekamp

June 6, 2020

“V” Stands for… – April 2020 Commentary

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The March stock market decline that few saw coming was followed by a stock market recovery in April that few were expecting. With the S&P down 20% for the year as of March 31st the 12.7% recovery in April leaves the index down 9.85% for the year. For portfolios invested 60% in equities and 40% in bonds and cash the returns were approximately -19% in the 1st quarter, +8% in April and -12.5% for the year.

Both market commentators and investors were left scratching their heads trying to marry the juxtaposition of the darkness of the pandemic news to the light of the market having experienced its largest one month return since 1987. News stories describing job losses in the tens of millions on the same page with those of Dow Jones Industrial’s Average gains in the thousands of points seemed, well, strange.

Included in my commentary of March 30th was the observation “the economy will rebound and will experience limited lasting negative effects.” I also predicted that “by mid-April the shuttering of our economy will be reversed”. That has proven to be too optimistic by about two weeks but as this is written the economy is starting to reopen in many states and I believe that by mid-May in much of this country we’ll be on the way back to business as usual. This is an opinion many do not share as the quotes at the beginning of this commentary attest but in July, I suspect the financial press will be filled with stories with headlines including the words “surprising”, “growth”, “increases” and “recovery”.    

Don’t Bank on a V Shaped Recovery”; Morningstar, May 1st 

In attempting to understand the behavior of the stock market it is easy to be drawn into focusing upon the influence of the many effects upon that behavior but there is one cause that, much more than any other, is the source of equity market returns, economic growth rates, which create the opportunity for increases in corporate profits. In late February, due to the global pandemic, it became apparent that, for the first time since the Global Financial Crisis, earnings in the current year were likely to fall below those of the prior year. During the first three weeks of March it was the market’s inability to identify the extent of the economic damage created by the pandemic and our nation’s public policy response to it that led to the market’s precipitous declines.

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Two events have significantly impacted the performance of the market these past ten weeks. First, was the market’s increased confidence in its ability to “see through” to the extent of the economic damage likely to be experienced. The source of the market’s ability to put in place its lows was not that the news was in any fashion “good” but rather that its outlines, even if only vaguely, could be foreseen. Second, the market’s recovery this past five weeks (the market actually made a low as measured by the S&P of 2191.86 on March 23rd), I would suggest, is based upon its estimating that the length of time for the negative consequences of the pandemic to “wash through” our economy will take approximately three months. Lest we forget, the market looks three to six months into the future and what it is “seeing” is what is currently affecting the market. 


 “The Fed Doesn’t Believe in a V Shaped Recovery and Neither Should You”; SeekingAlpha.com, May 2nd

Here the logic being employed may appear to be somewhat circular as I’m seemingly suggesting that the best reason to be optimistic about the economy is the market and the reason to be optimistic about the market is the economy but in this instance the pieces actually fit together very nicely. The market bottomed in late March. In six months, we’ll be entering into the 4th quarter. Earnings in the 2nd and 3rd quarter will not be pretty and the market knows this. Heading into this year earnings for the S&P 500 were expected to approximate $176 versus 2019’s $163. Factoring in the effects of the pandemic this year’s earnings might be $138. With the prospects for a “V’ shaped recovery starting late in this year’s 3rd quarter, and with the momentum for accelerating economic growth rates carrying through into 2021, a reasonable estimate for 2021’s earnings is $180; modestly above the original estimate for 2020. 

The Week Business Waved Goodbye to the V Shaped Recovery”; Financial Times, May 1st

With a strong economic recovery in store for this year’s 4th quarter, and with the recovery gaining momentum throughout 2021,  I would offer 3600 as a reasonable one year target for the S&P 500, a 24% increase above the April 30 market close and 6% above the all-time market close on February 19th

What does the “V” stand for? The vacation, and the relatively short one, for the decline in the current value of investor’s portfolio values versus those at year end 2019. And a smile. MUCH better day’s will soon be ours to experience and celebrate.

Mark H. Tekamp

May 6, 2020

What We Believe – March 2020 Commentary


These are VERY difficult days, for investors and those whom they depend upon to advise them. Until this past week every investor who had sold an investment at any time during this past six weeks was glad they had and every investor who hadn’t wished they had. Those of us who have counseled patience and to avoid selling into a market panic hope this market rebound continues but some investors are understandably concerned that this market decline may not be over.

Americans are seeking facts and find that much of the information they receive is contradictory. Some of it suggests the Coronavirus is not much worse than the flu and we’re grossly overreacting to it as a nation. Others believe our economy is destined to slide into an extended recession with many of our fellow citizens becoming financial casualties of one of history’s great pandemics.


Truth and perspective, as well as peace of mind, have become casualties of these challenging times.


Those of us at Heritage Wealth Management Group treat our responsibility for your financial well being  with the utmost seriousness and we have spent many dozens of hours these past several months looking at the facts as they are known and are doing our very best to be as certain as we are able that our recommendations are consistent with those facts.

While we acknowledge that we are not dealing with certitude but rather probabilities we nonetheless believe that the Coronavirus can be understood and that our understanding of its behavior in other countries these past several months can be used to shed light on its impact upon this country both now in the present and in the near term future.


Wall Street - Heritage Wealth Management Group - Finance

We believe that the United States is just now entering the period of the peak lethality of the Coronavirus. The numbers of daily fatalities will remain close to the current levels and then, we suspect, will start to decline in the next several weeks. By the end of April we anticipate that daily fatalities will be notably lower than current levels and that as we enter into May the Coronavirus will cease to pose a significant threat to the health of the American people.

We are optimistic that by mid April the shuttering of our economy will start to be reversed and that while we will experience some reduction in economic growth rates in March and April the economy will rebound and will experience limited lasting negative effects. With that expectation we believe there is a significant likelihood the financial markets will fully recover and by late this year possibly make new highs.




We have been and will continue to realize losses for those investments our client’s hold in their taxable accounts. We are reinvesting those funds back into similar but different securities and look forward to those days in the not too far distant future when we will be realizing capital gains and will be using the losses we are currently realizing to allow those gains to be realized on a non-taxable basis. We also anticipate rebalancing our client’s portfolios so that exposure to the equity markets is restored to their pre-crisis levels. We are also suggesting that those of you who may have investable funds currently sitting in cash give some consideration to employing those funds into the financial markets at a time when this will be appropriate.

We are also keeping a keen eye on the financial markets to determine to the very best of our ability a time for us to employ these strategies. The turning point for this market may not be very far distant. When it comes those of us who have suffered through this decline may be pleasantly surprised by both the speed and the power of the recovery.




After the markets recover we will have a conversation with each of you to revisit your respective allocation between stocks, bonds and cash. Rapidly rising markets make a virtue out of risk which it never is. Declining markets remind us that risk is a part of investing and we’ll review the events of this past several months as an opportunity to be certain that the risk you are assuming is the level of risk that you are comfortable with. We’ll also redouble our efforts to integrate the financial planning process into our relationship with those of you for whom it is appropriate as we are reminded that your investments are not the ends but rather the means for the achieving of your financial goals.

“Finally, and perhaps most importantly, we will never cease to focus upon our exploration of additional ways to increase the value of the relationship we share with you.”

As we’ve experienced these difficult days with one another we are reminded, and will never forget, that the best part of what we do is that you extend to us the very great privilege of allowing us to do it for you.


Mark H. Tekamp

March 30, 2020