“And the sun took a step back, the leaves lulled themselves to sleep and Autumn was awakened.” — Raquel Franco
The beginning of fall is a time of the year many people look forward to, myself included. The weather starts to get cooler, the leaves on the trees begin changing color, and football season arrives. After what any reasonable person would consider a hot climate (in more ways than one), a morning chill will be a nice respite from the oppressive heat. With the changing of seasons, perspective about world and economic affairs can also be seen in a different light. It is with that background that we turn to the financial markets, as market participants seem to be viewing financial assets a little differently.
As most of us are well aware, the last three months were quite interesting for investors. Clearly, the bell of the ball are companies related to the NASDAQ, which rocketed 70% off of the lows in March. As communicated for the last few weeks, it appeared market participants pushed the envelope a little too much, and the NASDAQ has now retreated nearly 10% from it’s summer high. The Dow and S&P 500 indexes haven’t quite seen the volatility of the NASDAQ, with the gains more muted and losses also more controlled. For the week, the S&P was down 2.5%, the Dow lost 1.66%, and the NASDAQ dropped 4%. With the third quarter coming to a close in the next few weeks, earnings season quickly approaches. Investors have piled into companies benefiting from the lock down mentality and trends which are viewed as advantageously positioned. Specifically, think internet based retailing, remote access and cloud computing, software as a service, electric vehicles, and renewable energy. Conversely, travel, hospitality, financial s, and oil remain in the doghouse, deep in the doghouse. Bow wow.
As markets are forward looking, there is much anticipation about vaccines offering a solution to the pandemic. Over the next few months, large clinical trials are being administered and markets will discover if any of the stage three candidates will get approval from the FDA. Manufacturing will take time to ramp up, and projections for the first or second quarter of next year for full production seem apt. On the earnings front, it was a relatively light week with Lululemon, Kroger, Zscaler, Chewy, Kroger, and Gamestop the headline reports. The latter disappointed, and Zcaler was much anticipated and came in a bit light. In the energy market, Saudi Arabia cut oil prices and black gold got hit hard, losing nearly 7% for the week. Demand, with air travel still terribly subdued, remains muted outside of China. The bond market continues to be a favorite place for corporations looking to borrow cheap or refinance debt obligations. The fixed income market bodes well for the earnings of money center and investment banks, which are hampered by low interest rates for net interest margins.
In the western portion of the US, California and Oregon continue fighting massive wildfires. There are nearly 5 million acres of land which have been destroyed because of the fires. Governor Newsome, the king that he alone believes to be, proclaimed the debate about climate change over. Mr. Newsome and the environmentalists have helped contribute to the problems with their onerous restrictions on systematic and controlled burns in the forests, as well as the state moving away from traditional energy forms. In economics, choices are made about how resources are used. California continues to make poor choices about energy, the environment, and how the two interact. Finally, last week all four major sports leagues were in action for the first time ever. Personally, the Golden Knights are in the final four of the NHL playoffs so that is my priority, along with baseball. Television ratings are way down for the NBA (20-30%) and the first game in the NFL saw a fifteen percent decline as well. With no gate revenues, the leadership in those leagues have to be monitoring the numbers and rooting hard for the pharmaceutical companies. Join the club. The NBA and NFL have lost my interest, at least for a while. From my perspective, it’s ridiculous to consider injustice arguments from people who are fortunate to earn sums that ninety nine point nine percent of society won’t earn in their lifetimes. Moreover, the number of small businesses owners who lost their livelihoods because of the looting and rioting is personally disturbing. Small business remains the heart and soul of the country. One political party has shown a blatant disregard for this segment of society. I’ll leave it to you to figure out which one.
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Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog, Investing in securities involves risk and the potential loss of ones principal. Past performance is no guarantee of future results. All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one’s overall financial situation. The fact that Yale Bock has earned the right to use the CFA designation does not mean Y H & C Investments will outperform broad market indexes.