January 15, 2021

Investing in Virtue

 The global markets fell back today after attempting to continue their push higher this week on the back of further distribution of the vaccine, the optimism of a big stimulus package and their impact on fundamental improvements in corporate balance sheets. But as more and more stocks, with little left to their value except some youthful sex appeal there is a separation of narratives of what are the market’s going to do going forward. The first is the fundamental analyst, ready to carefully give validation to companies in out of favor sectors such as Energy and Technology, particularly the older companies. The second are the technical analysts who see that market as overbought but not too overbought and still strong enough to withstand a modest pull back. This is the opinion I’m comfortable with and has been accommodative to my recent portfolio additions.

The view is in part also supported by economics, but not because they are especially negative. Drops in Retail Sales and job loss in last week’s Employment data and this week’s rise in jobless claims have noticeably clear sources of reason. Namely, pandemic related lockdowns have had an expected impact and the recent extended issuance of stimulus sourced unemployment checks could encourage many to rejoin the ranks of claimants. But not to diminish these events, there are a lot of global lockdowns occurring and travel bans as new variants of the pandemic are revealed. Hopefully, these will be met with a speed up of vaccine distribution when the post-election winners take their place in Washington, assuming they’re done with their other stuff. On a more optimistic note, still open is the fiery narrative surrounding the incoming inflation due to what is expected to be a surge in consumer spending after the passing of the next stimulus package. This week the Fed Chairperson assured that a sharp rise in inflation was at the moment “theoretical” and would not sway the Fed to increase interest rates in anticipation. 

Normal is in sight, but so little in the financial narrative covers the condition of the markets and instead focuses on the division tearing the country apart. Lucky for investors, the majority of Americans still share many consuming habits, it’s one reason I added Constellation Brands (STZ) to portfolios this week. 

And with so much slack in many of the global economies, opportunities are showing up. But that’s no reason to ignore the uncertainties. As the new administration assumes its place, the slender majorities in both houses that I’ve referred to previously, will likely limit most of the more dramatic policies expected. But tax policy is one that has the potential to change in some significant ways. In my opinion, these won’t be the first time taxes have gone up, and as the focus is generally on the highest incomes that’s generally not great for the economy, but historically has had less impact on the capital markets. Even the potential rise in corporate taxes, likely to remain well below the old 35% level might have less impact as many companies have cut back on shareholder rewards in favor of more internal expenditures, such as employees and their communities. Companies such as Salesforce (CRM) have led this movement since the beginning of the pandemic. All of this is open until the plan is made clear, and until then, only the ability of the new Senate and House to negotiate the outcome is the remaining uncertainty. I’m not altogether optimistic, but always open to be proven wrong.

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