The markets appear to be focused on the opportunities of the post pandemic economy. In our case the opportunities that we remain focused on are industrials and Consumer sectors. But the reason to keep looking for opportunities is the assumption that they exist. The past 2 weeks has seen the gradual decay in the price of Amazon (AMZN) and Apple (AAPL) at the expense of JP Morgan (JPM) and Chevron (CVX) representing 2 sectors that trailed the rush to technologies for consumer needs. So, does this mean we should sell technology?
All stocks of fundamental value
and relevant business models eventually rise until they are overvalued. And
that’s when one looks at stocks with many of the same fundamental
characteristics although out of investor favor simply for being out of sync
with economic conditions or some other factor. In my opinion, selling
technology after a meaningful technical correction, as has occurred this month,
is not the answer. That is because investing in a company requires conviction
in the long term aims of its core business, and if at some point that company’s
stock becomes overvalued, take some profit, rather than exit. I’m content to
invest the cash in new names as they present value to my strategy. For now,
Material companies have potential and I’m looking at value in the Healthcare
and Technology sectors.
Inflation and interest rates have been
a focus of the narrative lately as the 10yr Treasury has risen nearly 20% to
yield 1.52%. Between pointing to the rise as evidence that inflation is a
serious problem and the potential hindrance on borrowing costs, in my opinion,
it’s too early a rush to judgement. I say this because interest rates by any
historical measure are still favorably low. And as far as inflation goes, I
think it should be a serious consideration, but Fed Chairman Powell this week
said it’s not a problem. My guess is the Chairman has access to more data than
the general public and includes the narrative. On the economic front the
Chairman also holds a constructive outlook on further expansion of activity as
the public becomes more widely vaccinated. This position is supported by recent
increases in New Home Sales (+.06%), Retail Sales (+5.3%) accompanied by a rise
in Consumer Confidence and PMI U.S. Services. The latter rose to 58.9 and being
over 50 signals expansion. While there are negative blips along the way, the
overall picture suggests expansion is still occurring and is expected to
accelerate as more people are vaccinated and the weather gets warmer.
Lastly, the promised stimulus package
is typically hung up in debate. However, there is still confidence that
something will come and that will add plenty of fuel to expectations, and some
to the market as well as soon as it finishes its much needed break.