Taxiing or Take Off?

“Contradictions do not exist. Whenever you think that you are facing a contradiction check your premises. You will find that one of them is wrong.” Ayn Rand from “Atlas Shrugged”


There it was on the front page of the April 30th edition of The New York Times. “U.S. Economy’s Strong Start Signals a Stellar Year.” One year ago, who would have thought that our journey through Covid would have led to unbridled economic optimism, predictions of accelerating growth and booming financial markets with the euphoria only slightly tempered by concerns about rising inflation and interest rates?

Like red flags to bulls investors certainly appear to be drawn to rising prices. The plurality of those expecting rising versus declining equity prices has risen from 8% in January to 22% in March and 64% in April. They are bearish though on the bond market with 65.2% expecting interest rates to rise and only 7.9% the reverse, the lowest since March 2019 and possibly not coincidentally prior to a 1% decline in rates the following four months. The prospect of higher mortgage rates though has not discouraged the public from its plans to purchase a home with that number now at 8.9%, the highest since April 2002. Nor have prospective buyers been dissuaded from those plans by the need to pay more for what they plan to purchase with the Case-Shiller home price index charging forwards at a 17.6% annualized rate the past five months through April, the highest rate since the 2003-2007 bull market run in residential real estate.

A more careful examination of the current state of our reality though may reveal a somewhat more complex state of affairs. 16.56 million of us are still receiving unemployment benefits, eight times their pre-pandemic level. Government benefits now represent a 28% share of personal income contrasting with 16% pre-pandemic. In the first quarter of this year wage and salary income rose by $156 billion, a mere one-fourteenth of the $2.25 trillion in transfer payments received in the quarter. Perhaps this explains the variance in the level of optimism in how we view our present and future. The Conference Board’s Consumer Confidence Index rose to 121.7, a significant improvement over the 109.0 level in March. (The pre-pandemic level was 132.6). Deconstructing that index though between its present and expectations (i.e., future) subcomponents, reveals future expectations declining to a five-month low. Finally, the shipments of durable goods (goods not for immediate consumption) have trended downwards on a quarter over quarter annualized rate from 33.1% in Q3 2020 to 18.3% in Q4, 10.3% in Q1 2021 and 1.8% in April.

Investors would have been hard pressed NOT to have made money in April. Looking over a list of fifty-eight indices only TWO were negative, India and Japan, both Covid related. The S&P was +5.29%. That pesky variance with the Dow Jones Industrial Average persists which was +2.69%. The November 2020 reversal of that year’s prior market leadership (Small Cap versus Large Cap, Value versus Growth, Energy versus Technology etc.) which showed signs of reversing last month persists with Growth +6.83% and Value +3.65%, Small Cap up only a third of the S&P rise at 1.85%, Foreign Developed Markets +2.95% and Emerging Markets +1.20%. Energy, up 31.7% for the year, was barely positive at +.7% and Technology, up 7.7% for the year (versus the S&P’s 12.0%) was +5.20%. The 60 (equity)/40 (fixed income & cash) portfolio returned 3% for the month and is now +7.3% year to date with the equity portion returning +4% for the month.


Mark H. Tekamp, May 2, 2021

Your – oh! March 2021 Commentary

“Europe is so well gardened that it resembles a work of art, a scientific theory, a neat metaphysical system. Man has re-created Europe in his own image.” – Aldous Huxley

Financial - Heritage Wealth - HWMG -For investors, Europe is not so much a place given up for lost as simply forgotten. And when not forgotten, the glimmerings of its continuing existence are likely to be reminders of the imperfections of the human experience. “In another locked down, disrupted Easter, a tired Italy can’t escape the virus.” So said The Washington Post. “German finance chief says Covid surge shows now is not the time to reopen economy.” That from CNBC. Describing the continent in its entirety CBS News headlined “New wave of coronavirus infections sweeps across Europe.” So life goes forwards in much of the world but in Europe seemingly it remains the same. Clearly not a good time to buy European stocks, right? And what if one owns them? Should they sell them?
Curiously though, the markets seem to be saying something entirely different. The Markit Manufacturing PMI indicator measures the rate of growth of the most cyclical of the economic sectors and so serves as a very good indicator of the trend for the remainder of the economy. In March there were six countries with a stronger PMI number than the US. Five were in Western Europe including #1 Germany and #4 Italy. The German number was the highest in twenty-five years and dramatically exceeded expectations. The European stock markets may be telling us that there is more where this is coming from. The Euro STOXX 50, a sort of Dow Jones Industrial Average for large European companies, has handily outperformed the S&P 500 year to date 6.74% versus 5.77%. The best performing European stock market of all? Italy, outperforming the S&P for the month 5.31% versus 4.24%.
Has anybody noticed the divergence in the performance of the Dow Jones Industrial Average versus that of the S&P 500 in recent months? The ten-year average returns for the two indices, 12.93% and 13.81%, and the five year returns of 15.85% and 16.23% are reasonably close to one another but this year to date is a bit of a different story. January’s -2.10% versus -1.01%, (S&P & DJIA) February’s 3.17% versus 2.76% and March’s 6.62% versus 4.24% result in a Q1 2021 return of the two indices of 7.76% for the DJIA and 5.77% for the S&P. Finally, in a revelation of the pursuit of reverse near symmetry, from January 4th through February 12th the S&P outperformed the DJIA 4.7% to 2.8% but from March 4th through March 29th the DJIA outperformed the S&P 4.6% to 3.0%. That would seem to be, as we say in the trade, 
statistically significant.

March, while one-third of the quarter, bore some distinguishing qualities very much its own. Small cap stocks (as measured by the Russell 2000) were up 1.39% for the month, one-third of that of the S&P, though returning 12.90% for the quarter, more than twice that of the S&P. In the large cap space value continued to outperformed growth 6.31% to 2.72% for March and 10.91% versus 2.22% for the quarter. Foreign stocks underperformed the US market (despite the strength of the European markets) with returns of 2.51% for the month and 3.99% for the quarter. The 60% equity 40% fixed income portfolio returned 4.39% for the quarter and 1.11% for the month with the equity portion of the returns (6.73% for the quarter and 2.76% for the month) being offset by the modest negative returns of the fixed income portion due to the rise in interest rates during the quarter.


Mark H. Tekamp; April 7, 2021

Both Sides Now – February 2021 Commentary

“I’ve looked at clouds from both sides now. From up and down and still somehow it’s cloud’s illusions I recall.” 

– Joni Mitchell, lyrics from “Both Sides Now”

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Inflection points contain a quality uniquely their own. They provide the observer the ability to gaze upon both past and future simultaneously though with the act posing a risk of confusing one for the other! Certainly, the disconnect this month between the commentary of some market observers and its contrast to what investors observe in the returns in their portfolios reveals at least the possibility of the existence of alternative realities.

The Bloomberg story of February 25th “In a Flash, U.S. Yields Hit 1.6%, Wreaking Havoc in Markets” contained verbiage leaving the reader uncertain as to whether they were reading about a circus or a war. Supporting the former were words such as “catapulted”, “tumbled” and “soaring”. “Jarring spectacle”, “led the plunge”, “amid the carnage”, and “bond yields were exploding” though suggested the existence of something a bit more ominous. 

The grist for this particular mill of hyperbole is the interest rate on the Ten-Year US Treasury Bond which closed the month at 1.54%, a not insignificant increase from its level of 1.11% one month previously. Here it might be helpful to place that particular security upon a gurney and perform a bit of dissection. The stated interest rate, in this instance the aforementioned 1.54%, contains within that single number the presence of two. The “nominal” rate is the number referenced but there is a second number as well, the “real” or inflation adjusted rate. If expectations of future inflation rates have increased by more than .43% in the past month then the inflation adjusted rate is declining. If this is a sign that financial markets are starting to anticipate the reopening of the economy and a surge in economic activity, then this might be very good news. 

It is quite possible that an increasing disconnect exists between the increasing amount of sunlight likely to be present in our futures and the darkness of our experience of the now almost one-year journey through the pandemic. The opportunity for investors equals the distance between expectations and reality and this is a salve that should stimulate the pulses of the bullishly inclined. With the Federal Reserve promising not to raise interest rates this year and with the US Congress due to pass the Biden administration’s request for an additional $1.9 trillion in federal spending with $1.2 trillion to be spent this year, 6% of the US economy, the winds in the sails of economic growth are strong indeed.   Money - Finances - Heritage Wealth Finances

The judge whose verdict investors most care about of course are the returns of the financial markets themselves. Here the shift in market leadership which has been much in evidence since early November supports the sunny view of our current economic prospects. The index, named after Henry Varnum Poor, belied his surname by rising 2.8% for the month with the spread between value and growth continuing to wide as the value portion rose 6% for the month and is +4.3% for the year contrasting with growth’s -.04% and -.05% respectively. Energy stocks continue to race forwards with monthly returns of 21.4% and 26.2% year to date followed by Financials 9.4% and 6.9%. The equity share of the 60/40 portfolio contributed 3.8% to the portfolio’s 3% for the month and 3.4% year to date.

Mark H. Tekamp; February 27, 2021

Sell the Gloom Buy the Boom! – January 2021 Commentary

“It can be easy to get swept up into catastrophizing the situation once your thoughts become negative…remind yourself that there are many other potential outcomes.” – Amy Morin

There have been six economic recessions in the United States wealth management - financesin the past quarter century. Our most recent experience of economic tempest and tumult however, has been unique. Economic downturns result in the loss of jobs and thus a lowering of incomes. Not this time though. As of September 30, 2020 the income available to be spent by the American people INCREASED 7% year over year. Earnings through employment declined but not by as much the $2.2 trillion provided under the CARES Act signed into law on March 27, 2020.

Responding to the economic uncertainty created by the pandemic we dramatically increased our annual savings from $1.2 trillion as of September 30, 2019 to $2.5 trillion. We are currently saving 14.3% of our incomes, twice their pre-pandemic level. When we resume our normal lives, and the likely drawing down both the amount and the level of our savings to their pre-pandemic levels, more than $2.5 trillion or 12% of the current size of US GDP will be available as fuel to feed the fires of the US economy.

The financial markets seem to be anticipating this likelihood. US small company stocks, whose earnings are almost solely dependent upon the domestic economy, rose 31.3% in the 4th quarter of last year and 4.85% in January versus the S&P 500’s 13.82% and -1.02% respectively. CNBC on January 24th carried the following news item about global transportation. “Shipping costs have skyrocketed as desperate companies wait weeks for containers and pay premium rates to get them.” Following the stock markets meteoric rise in November, commodity prices have experienced dramatic increases. Since December 8th oil prices are up 15%, wheat prices 13%, corn prices 29% and pork prices (for those producers able to afford the cost of feeding them!) 16 ½%.

For investors, 2021 may well be a year that, while close in proximity to its predecessor, harbors within itself more differences than similarities. A booming economy creates competition for the financial markets in the deployment of capital because of increased opportunities for that capital to seek profits in the real economy. It may also be a year that represents a transition from the decades since the 1980’s to a rather different looking future where perhaps interest rates begin to exhibit a tendency to rise rather than fall and where inflation becomes something more than just a historical construct.

With all the talk of bubbles in recent days I thought it might be opportune to invest in Wrigley’s stock but unfortunately Warren Buffett bought the company in 2008. In thirty-eight years of employment in the financial services industry (I began my career at a VERY early age!) I’ve seen a great many things but one I’ve never seen is an event that many investors are anticipating. No, the stock market is NOT in bubble territory.

No, the stock market is not about to crater and no, GameStop stock doesn’t mean much of anything at all beyond its serving as a very interesting human interest story.

wealth management - financesInvestors portfolios hit the pause button In January. The last several days of the month separated investors from a point or two of profits and the typical 60/40 stock/bond portfolio was up some fraction of a percent. Small Company stocks were up almost 5% as mentioned above with Energy stocks +5% and Foreign Emerging Markets +3% but Large Company stocks and Foreign Developed Market stocks were exercises in break even. Meanwhile, in the real world, prepare for the good time’s ahead!

Mark H. Tekamp; February 1, 2021

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?

Wealth Management - Stock Market Commentary - Investments - FinanceLest 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.Money - Heritage Wealth - Financial Services - Wealth Management

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.

Heritage Wealth Management Group - Market Commentary - Stock Market PredictionsMarket 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.

Heritage Wealth - Stock Market Insights - Market Commentary - Wall StreetThe 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