February 25, 2021

Taking a Break

     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.

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