July 2, 2020

This Market Is Not Plural

The entertaining thing about the emerging input coming form the Pindudes is the claim that “stocks always go up”. If there was anything about the current temperament of the broad indexes its that such a bold statement is only half the story. This is because many stocks have gone down since the beginning of the virus, and many of those stocks, such as Aircraft manufacturer Boeing (BA) are driving the markets while still well below their respective 52 week highs. The point is that when I refer to the broad markets, I’m referring to the combination of the Dow Jones Index, the S&P500 Index, and the NASDAQ Index. And as of today those first two indexes are still down -9.5% and -3.1% for the year, and the NASDAQ is up 13.8%. Seems out of whack? You’re not alone.



The primary driver of the NASDAQ has been those companies benefiting from the pandemic. Technology companies such as video communications provider ZOOM (ZM) and internet commerce solutions provider Shopify (SHOP) are up over 285% and 162% respectively. But for some companies the benefit is much less clear, such as electric car manufacturer Tesla (TSLA) whose shares are up this year over 180%. These companies are the food that give hungry Pindudes and our favorite Algochums much to chew on, but smart investors are also getting in on the game and that is where I see that it’s more of the global impact that these companies have at their advantage. Primarily because the pandemic has been a global experience the need for many of the companies mentioned above make a lot of sense. But the continuation of that advantage is an open question, and since I’m of the crowd that sees companies such as Zoom and Amazon as integral part of the new normal of remote work the comforts of internet shopping, I see a small and loud community that is providing just enough pessimism to keep cash on the sidelines and latecomers interested. This is an interesting phenomenon, because most technical measures on the S&P 500 are showing more friendly levels while the NASDAQ is literally in orbit. I’m often asked if one should buy Apple (AAPL) or Amazon (AMZN) my customary response is to tell them those are great companies, but for now, you should already own them.



Today the Bureau of Labor released the Employment report of June which showed Payroll growth of 4.8 million and an unemployment rate that declined to 11.1% from 13.3%. These are good numbers by most measures, but best not forget they come from very dire economic conditions for the job market that still have many people out of work. A recent release of the ISM manufacturing Index rose to 52.6 from 49.8 and worth noting that a number above 50 signals an expansion of activity. Other areas of the economy have continued to show some vigor, such as New Home Sales and Home Building and some coming from the reopening of retail shops and restaurants, the latter in discussion as new cases of the virus grow in those states which had less of an initial impact. The Fed has been unusually quiet, but it’s likely Chairperson Powell will weigh in when Washington decides to revisit stimulus to address current and future expected economic conditions. In the meantime I’ll just take it as, no news is good news.


External Events

This week I reduced those with positions in Facebook after reaching new highs only to be consumed by another condemnation. Last year I read an article in the Economist that asked the question if we’d all be better off without Facebook. While the article didn’t tell me anything surprising, I found the same question in numerous articles, some with dense comment sections, and it’s the comment sections that proved the point. Namely that Facebook has caused as much harm as it has good and if one can find the space to criticize everything from the use of fossil fuels to what we eat, seeing the need to tame Facebook and other social media is not a talking point that, in my opinion, will go away soon. Hence, the smaller investment is better for now.

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