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Y H & C Investments December 2020 Monthly Update- Edition 149

Economic & Financial Markets Outlook-Markets Roar Higher as Vaccine Optimism Improves Sentiment After the Election! (Return figures in this section come from the November 30, 2020 edition of the Wall St. Journal.  Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research possible investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)

In November, the Dow Jones Industrial Average gained 10.08%, the S&P 500 rocketed 9.41%, and the NASDAQ tacked on 11.33%.  As often is the case after a Presidential and Congressional election, investor sentiment improved once outcome uncertainty was eliminated.  In terms of the economy, with COVID-19 cases skyrocketing across the country, more restrictions in the service sector have ratcheted higher across multiple jurisdictions, especially in the high population states run by Democratic governors.  Employment numbers won’t be helped by the COVID-19 problems, and the weekly jobless claims trend has stagnated higher in the 750k range over the last month.  With three vaccines all showing above 90% efficacy rates in their clinical trials, there is optimism that distribution will begin in the United States by year end.

As the all-important holiday shopping season started early, initial indications show online sales growing nicely while mall traffic and sales show dramatic declines (think 20-30%) on a seasonal basis.  As far as economic conditions are concerned, traditional metrics like low interest rates, minimal inflation, cheap energy prices, and the relative strength of the dollar all paint a very favorable picture for many sectors in the economy.  Even those hardest hit from COVID-19 effects, especially travel and hotels, have seen continued improvement and the hope in those sectors is by the middle of next year trends will move towards a more normal state.  Restaurants and bars remain highly troubled, and it continues to be an area badly needing a second government stimulus agreement.  Don’t hold your breath on that.

As for the rest of the year, December will see a big month for high profile IPO’s as AirBnB, Instacart, DoorDash, and Roblox all have filed to go public.  Investment banks are preparing for a big 2021 in the merger and acquisition area as private equity is sitting on a pile of cash (think hundreds of billions).  With respect to equity valuations, the S&P index remains tech top heavy at nearly 25% of the index.  Tesla joining the S&P also bumped up the consumer discretionary weighting.  In the event markets see a sector rotation, or the long awaited move to value from growth, those sectors could see above average selling pressure.  In the meantime, tax loss selling and 2021 planning will keep investors busy for the balance of the month.

Global Economic & Financial Markets Outlook-Investors Look At 2021 And Ponder A Different World Post Covid and Trump! (All country index data provided by countryeconomy.com, November 30, 2020.)

With one month left to go in the year, global equity markets remain bogged down with concerns over the Covid-19 virus.  With infections and deaths spiking across Europe, equity investors are risk averse as little progress has been made in controlling the spread.  In conjunction with negative yields on fixed income assets, Europe remains an unloved continent.  In contrast to Europe, Asia is viewed more favorably with optimism the worst may be behind this area, especially when looking at China, Japan, Taiwan, India, Singapore, Hong Kong, and South Korea.  The divergence highlights the distinction in equity performance across the globe.  With emerging markets suffering from very poor results over the last decade, some investors see the area as the biggest value source in a globe full of overpriced assets.  Let’s look at some specific countries to view some evidence of this contrast.

In Europe, with the UK’s FTSE down 16.92%, France’s CAC at -7.69%, Spain’s IBEX at -15.42%, Italy’s MIB retreating 26%, and Portugal’s PSI losing 11.69%, only Germany’s DAX coming in at .32% offers a country in the black across a very weak Europe.  Asia offers some positive returns, as evidenced by China’s Shanghai up 11.20%, Japan’s Nikkei rising 11.74%, India’s Nifty up 6.58%, South Korea’s Kospi gaining 17.91%, Singapore’s S&I losing 21.21%, and Taiwan’s TAIEX moving higher by14.38%, while Thailand’s SET fell 10.56, with Hong Kong’s Hang Seng dropping 6.56%.  Peering into next year, the first pressing issue for investors is how quickly the world can get vaccinated and start to see improvement in the fight versus the virus.  The second question is the new Biden Administration and whether it will be able to implement fiscal programs to help the US recover by the end of 2021?  Most investors are betting on big spending initiatives which will ultimately lead to dollar weakness, hence the bet on emerging market outperformance.

The Art of Contrarian Thinking- It’s Tough, But It Pays to Stick with Good Management! (YH & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research possible investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)

Throughout history, some of the best leaders have gone through difficult periods during their careers.  The multiple occasions Napoleon led France after banishment or when General George Patton was repeatedly forced from high command posts are examples of military leaders who eventually overcame difficulties to earn high acclaim.  In the sporting arena, coaches like Lou Holtz, Phil Jackson, Bill Parcells, and Bill Belichick all showed their leadership capabilities with multiple schools or franchises.  In politics, Richard Nixon, Ronald Reagan, and Bill Clinton all showed the ability to repeatedly come back from humiliating losses.

Like these fields, superior business leaders who have a history of proven success can go through time frames where the enterprises they lead aren’t thought of very highly by the investment world.  These time frames can stretch on for quite some time, sometimes multiple years.  In my experience, it pays to stick with CEO’s during lackluster results.  Over the last few decades, there are high profile examples of opportunities when a great CEO was given little respect by investors, only to ultimately earn huge rewards for those shareholders who stuck with them.  The most obvious case is when Jamie Dimon took the top spot at JP Morgan Chase, or when Steve Jobs returned to Apple.  Howard Shultz retaking the top position at Starbucks also comes to mind, as does Michael Dell rejoining his namesake Dell.  Sticking with these exceptional CEO’s is usually a profitable strategy for patient and persistent shareholders.  You might keep that in mind when looking for investment possibilities in the new year.

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(Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research possible investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)

 

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