September 2020 Newsletter

I felt it was an important time to update you in regards to the current market environment.  As expected, the "Stay at home" trade has proved fruitful and we are very pleased with the results.  With that being said, investing is never about looking in the rear view mirror to see what happened, but more of looking at the road ahead and analyzing what is happening one, two, three cars ahead.  I use this analogy simply because there are a few items ahead that warrant our attention and will dramatically affect the markets in the upcoming month/year.

First and foremost, the Presidential election.  At the beginning of July, polls clearly showed Biden with a wide lead, but that lead has waned over the past couple of weeks.  Will this trend continue?  Nobody knows for sure.  However, we can surmise that a Trump re-election would continue to support momentum stocks, aerospace and defense, financials and energy as these sectors outperformed after he was elected in 2016.  If Trump wins, we could reasonably expect the trade war with China to continue, resulting in reduced equity prices on Chinese ADRs and potentially reduced commodity prices as China reduces their purchases of American farm goods.

If Biden were to win, I see a bullish outcome for select healthcare, clean energy, utilities and consumer staples.  We could expect a moderately bearish move for technology and a clearly bearish outcome for oil & gas and financials.  On his campaign trail there are two constants, increased regulation and capital gains taxes, both of which are bearish for most equity sectors.  

The next major market moving event on our road to success is what I call "vaccine day".   Steven Hahn, head of the FDA,  announced over the weekend that his agency is willing to authorize a vaccine before Phase Three clinical trial are complete, as long as the benefits outweigh the risks.  Could a "vaccine" be released in 2020?   Possibly.  Will it be released by the end of 2021? Highly likely.  Under either scenario, the rising tide will lift all ships, with undeniable winners.   The rotation will be dramatic, with money flowing out of the overvalued momentum stocks and into the companies at the epicenter of the crisis, specifically travel and leisure.  You could expect specific cruise and airline stocks to soar, as well as restaurant, movie theater and gaming stocks.

Using our earlier analogy, we are keeping a very close eye on the road ahead and will maneuver accordingly.  At this point, it's too early to reposition a portfolio based on what may or may not happen.  But you better believe we have our shopping lists ready to take advantage of what lies ahead.

Stay safe.