Bull Market Blues

“Well, first you got to want to get off, bad enough to want to get on in the first place
And you better trust in your lady luck, Pray to God that she don’t give up on you right now”
– lyrics, Johnny Cash “Bull Rider”


One of the more interesting phenomenon currently existent in the financial markets is the disconnect that exists between the reality of most investor’s current experience and how it is perceived by those receiving its benefits. The titles of some of the numerous commentaries on the stock market are revealing. “Boom to bust. More signs of a major market top.” “Impending final crisis 2.0?” “Morgan Stanley warns – Major stock market correction.” “The bull market: A bubble of epic proportions.” “ALERT: Analyst predicts 80% Market Crash This Year.” The readings of the CNN “Fear & Greed Index” are interesting as well. Currently at 24 on a scale of 0 to 100, it is at a level indicating extreme fear, and significantly below the levels of 41 one month ago, 62 one year ago, and as a contrarian indicator, is close to levels that historically have preceded significant market increases.

Possibly explaining at least some of the distance that exists between perception and reality is that the stock market is being fed by the liquidity being supplied to it by both the monetary (Federal Reserve) and fiscal (the administration and congress) authorities. In a “bad news is good news” feed back loop, what the markets most want to be served is the “not too hot and not too cold” bowl of Goldilocks’ porridge, with economic growth rates sufficiently robust to support higher levels of corporate earnings but with the economy sufficiently weak to justify the need for its continuing fiscal and monetary support. Wild cards in the deck investors have to play include a continuing pandemic that will possibly provide sufficient motivation for the administration to extend the various economic support measures currently in place past their September 30 termination dates and Congress’s passing a $1 trillion plus infrastructure spending bill.

Aficionados of the “not too hot” type of economic data certainly have been pleased with what they have been served this past month. Q2 GDP rose 6.5%, normally an extremely robust number, but materially below the estimate of 8.4%. The New York Fed is now forecasting a Q3 GDP growth rate of 4.1%, down from 5.3% six weeks ago. The supply disruptions afflicting the economy appear to be fading as businesses that plan to add to their current inventory levels are reaching four to five month lows. Further confirming the “not too hot” condition of the economy are claims for unemployment benefits that continue to hover near the 400,000 level, twice their pre pandemic level, and new home sales at 14 month lows.

Regardless of the state of investors’ attitudes toward stocks, the market in July continued its bullish ways with the S&P 500 registering a +2.4% return and with nine of its eleven sectors positive. Energy, which still holds the lead for the year at +30.3%, was a notable laggard in the latest month declining 7.2%. Positive returns outside of large cap US stocks though are becoming a bit more difficult to find. Small Cap stocks declined 2.5% for the month though, with a 20.5% return for the year, they continue to narrowly outperform the S&P 400’s +17%. Foreign Developed Markets at +.90% significantly outperformed Foreign Emerging Markets -9.8%, whose returns were impacted by China’s -13.1% fall. For 60/40 portfolio investors, the equity portion’s +.25%, with lower returns earned on fixed income and cash assets, created a 0.15% return for the month and +8.30% year to date.


Mark H. Tekamp July 31, 2021

Dousing Housing?

“There’s no place like home, there’s no place like home, there’s no place like home.” – Dorothy, The Wizard of Oz


“Manic Housing Market Needs a Calming Dose of Deregulation”. So headlined Bloomberg on June 1st. “An inflation storm is coming for the U.S. housing market.” Thus warned Marketwatch on June 26th. By now, most of us are aware that residential home prices are, and have been, heading higher, with the median sales price in May reaching $374,400 versus $317,100 a year earlier. Employing our recollection of Economics 101 many of us would assume rising prices are a result of higher demand. That would not be correct. Mortgage applications for new home purchases are at their lowest level since May 8th, 2020 and are down 20% from the end of last year. So, if rising demand does not explain rising prices, then it must be shrinking supply. Well, no. Supply is actually rising. The supply of existing homes for sale is at 5.1 months, a 50% increase since September of last year. Housing starts in May were 1, 572,000 versus an average rate of 1,200,000 in the three pre-pandemic years of 2017 to 2019.

Looking at median home prices on an inflation adjusted basis is perhaps the best way to understand just how extraordinary the rise in housing prices has been. At the start of 1960 it was $174,079, in 1980 $187,505 and 2000 $206,620. The low in the past ten years was February 2012’s $198,688. With the $374,400 figure for May home buyers are now paying 88% more than just over nine years previously. This may serve to explain the headline of a story posted by Reuters on June 23rd “U.S. new home sales tumble to one-year low as prices soar.” It may also explain the polar opposite perspectives of home builders and home buyers. A confidence index for homebuilders is at 81.0, down slightly from 90 in March but still at a thirty year high. Homebuyer’s though feel somewhat differently. At 74.0 it contrasts dramatically with the 108.0 in March of last year which had marked the prior thirty year low. So, to summarize, prices are at historical highs, demand is falling and supply is rising. Wondering which direction home prices may be heading?

Wishing to perpetuate our housing tale just a bit further, equity market investors may have felt they were holding a “full house”. The last five days of June saw consecutive rising prices. The month was the fifth in a row with higher prices and the 8.2% return for the S&P in Q2 was the fifth straight quarter with over 5% gains, the first time that has occurred since 1945! In the race towards new highs though, the market did exhibit signs of fatigue in June. Foreign developed markets were down 1%. Emerging markets were up 1%, small cap stocks +1/3% and mid cap stocks -1%. Five of the eleven S&P equity sectors were negative and Technology regained its leadership role rising 6.9%.

The leadership of the market had rotated last November favoring small cap stocks, value over growth and foreign performing in line with domestic. In March that leadership began to revert back to its prior sources and that is exhibited in the Q2 rates of return. The S&P returned 8.4% with mid cap +3.5% and small cap +4.3%. S&P value stocks are still outperforming growth stocks year to date 16.3% versus 14.3% but with growth’s +11.8% return for Q2 versus value’s +4.9% that gap has significantly narrowed. The year to date rise in interest rates was entirely contained in Q1 with AGG, a widely used index of returns on taxable investment grade bonds, +.83 for June, +1.77% for Q2 and -1.66% year to date. For 60/40 portfolios returns were 4% for the quarter and are now 8.6% year to date.


Mark H. Tekamp/July 6, 2021

Inflation Fixation

“Not only is there but one way of doing things rightly, but there is only one way of seeing them, and that is, seeing the whole of them.” – John Ruskin


At 8:30 am on Wednesday, May 12th the U.S. Bureau of Labor Statistics issued its much anticipated news release of the latest Consumer Price Index number. “The Consumer Price Index …increased 0.8 percent in April…over the last 12 months the …index increased 4.2 percent…this is the largest 12 month increase since…September 2008.” The next day’s Wall Street Journal described the stock market’s reaction. “The Dow and the S&P 500 post their steepest three day decline in nearly seven months, while a sharp rise in consumer prices heightened concerns that interest rates could be headed higher.” The May 31st edition of Barron’s cover story headlined “10 Ways to Cash In on the Shortage of Just About Everything.”

Pulling open the curtains and looking at the details though we find a reality that is a bit more, shall we say, nuanced. At near 16 million 10% of the US labor force is currently receiving unemployment benefits, seven times their pre-COVID level. 444 thousand who were working LOST their jobs the week of May 15th, a level twice that of the averages of pre-pandemic levels. Though the opening of the economy has created shortages in some areas of our economy both retail and wholesale inventories INCREASED in April. Last month’s Citigroup Economic Surprise Index fell below 50 for the first time since June of last year indicating that more economic data is coming in below rather than above expectations. The University of Michigan Consumer Sentiment Survey DECLINED from 88.3 in March to 82.8 in April. The Cleveland FED’s Ten-Year Expected Inflation Index, which was at 1.58% prior to the release of the CPI figure, is now LOWER at 1.57% and the Atlanta Fed Wage Growth Tracker shows that expected wage gains which were at 3.4% in December have DECLINED to 3.2%. As for the fear of rising interest rates, the 10 Year US Treasury rate, which closed at 1.607% the day BEFORE the release of the CPI figure, found itself at the close of May 28th at 1.581%. 

The stock market has been accused of a lack of association with historical average valuations. The saga of the run to the stratosphere in the FAANGM stocks (Facebook, Amazon, Apple, Netflix, Google (aka Alphabet) and Microsoft) is well known to most investors. Indeed, the 642% return for those stocks since end of year 2012 in contrast to ONLY 140.2% for the S&P 500 excluding those companies, has led some to wonder whether this has been less of a bull market than a mania in certain stocks. Interestingly though, in recent months the arguably least overvalued areas of the market have acted as a magnet for investor’s capital. The growth and value components of the S&P 500 have created nearly identical returns in the past twelve months, 40%, but in the past seven months value is up 37%, half again greater than the 24.5% for growth. The seemingly perpetually under achieving Foreign developed markets have enjoyed returns equal to that of the S&P year to date and small cap stocks 23% returns thus far in 2021 are not far from double that of “the big boys” in the S&P 500.

The .66% return for the month of the S&P 500 hides pockets of significant strength in this market. Energy +6.6%, Financial +5.9% and Materials +4.8%, Foreign Developed Markets + 3.5% and the Eurozone’s +4.4%. Not too shabby. The 60/40 Equity/Fixed Income portfolio having returned 1.3% for the month (the Equity portion returning 1.4%) is now sitting (hopefully not resting!) on an 8.7% return year to date. That’s not too shabby either.


Mark H. Tekamp, June 1, 2021

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

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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.   

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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 in 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.

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Investors 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?

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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