tag:blogger.com,1999:blog-367220432024-03-07T19:01:53.153-05:00HORAN Capital Advisors BlogA disciplined approach to investing blog.David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.comBlogger2242125tag:blogger.com,1999:blog-36722043.post-70562989863688303262021-07-18T12:00:00.001-04:002021-07-18T19:20:52.636-04:00New Blog Site<p> Going forward the blog posts can be read on our firm's website at the following link:</p><p></p><ul style="text-align: left;"><li><a href="https://horanassoc.com/insights/market-commentary-blog" target="_blank">HORAN Market Commentary Blog</a></li></ul><p></p>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-39138039782662161752021-04-28T00:07:00.005-04:002021-04-28T00:07:36.743-04:00Hard Economic Data Suggests A Continued Strengthening Of The EconomyTuesday's release of the <a href="https://www.americanchemistry.com/Media/PressReleasesTranscripts/ACC-news-releases/chemical-activity-barometer-rises-in-april.html">Chemical Activity Barometer (CAB) by the American Chemistry Council</a> clearly is representative of an economy that is strengthening. The report for April showed a twelfth straight month over month increase in the CAB index. The significance of this is the fact the CAB Index leads the trough in the economy by an average of four months. The year over year increase equaled 21.7% and was the largest YOY increase since the 22.6% YOY increase in March 1951. The diffusion index for the CAB data was 100%. This means all the contributors to the index were positive.<span><a name='more'></a></span><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhTbpbC9RjRpAPU8iJNerqCW0ut6wS66BAVgx-HocF3HvVQRF_aLwft7MI0TviuMvrR18xOnICUIeYZeiS4oiSwl9fiMzOzaPD4ujrQMDQpAlf9wxHYgCVh5e6t2JSINn8O_TrtCQ/s691/CAB+April+2021.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="378" data-original-width="691" height="350" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhTbpbC9RjRpAPU8iJNerqCW0ut6wS66BAVgx-HocF3HvVQRF_aLwft7MI0TviuMvrR18xOnICUIeYZeiS4oiSwl9fiMzOzaPD4ujrQMDQpAlf9wxHYgCVh5e6t2JSINn8O_TrtCQ/w640-h350/CAB+April+2021.png" width="640" /></a></div><br /><div>Another important index is the Conference Board's Leading Economic Index (LEI). The <a href="This means all the contributors to the index were positive.">latest report for March</a> noted a 1.3% increase. The report noted, “The U.S. LEI rose sharply in March, which more than offset February’s slightly negative revised figure,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “The improvement in the U.S. LEI, with all ten components contributing positively, suggests economic momentum is increasing in the near term [emphasis added]. The widespread gains among the leading indicators are supported by an accelerating vaccination campaign, gradual lifting of mobility restrictions, as well as current and expected fiscal stimulus. The recent trend in the U.S. LEI is consistent with the economy picking up in the coming months, and The Conference Board now projects year-over-year growth could reach 6.0 percent in 2021.”</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEibvt1mHEJZ6ABBAG6P5Ot0v9xUFcnvmS4n-u2nJaGTFVeaeXR29aHPUSWcb-yN1wp7NZkU0_hyA8BnAp5zMHJOIYQEyYqZ5vngeY8X9OLhnT0VAGO3-JoLWvJi8R8mYVHkUY3z8A/s530/lei+and+market+4+2021.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="398" data-original-width="530" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEibvt1mHEJZ6ABBAG6P5Ot0v9xUFcnvmS4n-u2nJaGTFVeaeXR29aHPUSWcb-yN1wp7NZkU0_hyA8BnAp5zMHJOIYQEyYqZ5vngeY8X9OLhnT0VAGO3-JoLWvJi8R8mYVHkUY3z8A/s16000/lei+and+market+4+2021.png" /></a></div><div><br /></div><div>At the beginning of this article I noted the CAB's YOY increase was the largest since 1951. As far back as 2016 I wrote posts noting the current market's trajectory being similar to that of 1950's and 1980's equity market. With some of the recent economic data looking similar to data from the 1950 time period, maybe this market has more room to advance to the upside, but certainly not without setbacks.</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFrr2CA3zXz82m2suQIsFOgdBVxE27T6Qmkki7MlIqmTRGFe7roR7M2kXHeEsd5qzqv27YttpNgQ5gO3rNHIUUUldsdcvd39l4jOlSQxUdX-lkZ82ccQ-uNOn5WKUkgsoQLIYJqw/s518/market+1950+1980+4+27+2021.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="374" data-original-width="518" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFrr2CA3zXz82m2suQIsFOgdBVxE27T6Qmkki7MlIqmTRGFe7roR7M2kXHeEsd5qzqv27YttpNgQ5gO3rNHIUUUldsdcvd39l4jOlSQxUdX-lkZ82ccQ-uNOn5WKUkgsoQLIYJqw/s16000/market+1950+1980+4+27+2021.png" /></a></div><br /><div>Lastly, peak earnings reporting season for the first quarter is upon us. Of the 153 S&P 500 companies that have reported earnings for Q1 2021, 86% have exceeded analyst expectations. In a typical quarter 65% of companies beat expectations. Maybe more significant is the fact the upside earnings surprise factor is 22.3%. The average surprise factor going back to 1994 is only 3.7%. With more state economies opening and vaccination rates increasing, business activity is picking up and this is reflected in recent strong corporate earnings reports.</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgSWum1pUy6hy0EaGNhU_Y5O3VJjmnkALl7y_aD1kNAfrIsUe1ZOU30esbfj1xXrJcjncMLEpJnpq_x6IwijN0lukdMo5tcN4JKnvXHLl2lZl5Cn7qIwzY5g_oTIWXTMKmK0jjAIw/s458/earnings+beats+4+27+2021.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="401" data-original-width="458" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgSWum1pUy6hy0EaGNhU_Y5O3VJjmnkALl7y_aD1kNAfrIsUe1ZOU30esbfj1xXrJcjncMLEpJnpq_x6IwijN0lukdMo5tcN4JKnvXHLl2lZl5Cn7qIwzY5g_oTIWXTMKmK0jjAIw/s320/earnings+beats+4+27+2021.png" width="320" /></a></div><br /><div><br /></div></div>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-3772453101177148342021-04-14T20:56:00.000-04:002021-04-14T20:56:05.168-04:00Stock Buyback Rate Continues To Increase<p style="text-align: justify;">S&P Dow Jones Indices recently reported stock buyback results for the fourth quarter of 2020 noting a 28.2% increase in the quarter versus the third quarter increase of 14.8%. This increase in buyback activity for S&P 500 companies follows a steep contraction in Q2 2020, i.e., $88.7 billion versus $198.72 billion in Q1 2020. Aggregate dividends paid in Q4 2020 increased to $118.84 billion versus $115.54 billion in the third quarter last year. Buybacks totaled $130.5 billion versus Q3 buybacks of $101.8 billion. This level of buybacks pushes the quarterly back amount above the dividends paid in the quarter as seen with the red and purple lines in the below chart.</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjepuQN3TR2nY6pqxB5af9leg7WZyE9-ptytsyuOMcamNi1gOKRXjQ0fa9Tk7qYiopGENqqmVaLbPG9yAI-Q_TkR3rA_qi15lhoC0pO8mHv4tg_eu8uwXUAm2IpL1CYiSuZHy88nw/s528/buybacks+12+31+2020.png" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="528" data-original-width="473" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjepuQN3TR2nY6pqxB5af9leg7WZyE9-ptytsyuOMcamNi1gOKRXjQ0fa9Tk7qYiopGENqqmVaLbPG9yAI-Q_TkR3rA_qi15lhoC0pO8mHv4tg_eu8uwXUAm2IpL1CYiSuZHy88nw/s16000/buybacks+12+31+2020.png" /></a></div><div><br /></div><div>Some fourth quarter highlights from <a href="https://www.spglobal.com/spdji/en/documents/index-news-and-announcements/20210324-sp-500-buyback-q4-2020.pdf">S&P's report</a>: </div><blockquote><ul style="text-align: left;"><li style="text-align: justify;">
244 companies reported buybacks of at least $5 million for the quarter, up from 190 in Q3 2020 and down from 320 in Q4 2019.</li></ul><ul style="text-align: left;"><li style="text-align: justify;">Buybacks remained top heavy, with the top 20 issues accounting for 66.3% of Q4 2020 buybacks, down from 77.4% in Q3 2020, 87.2% in Q2 2020, but still up from the historical pre-COVID average of 44.5%.</li></ul><ul style="text-align: left;"><li style="text-align: justify;">Full year 2020 buybacks were $519.7 billion, a 28.7% decrease from 2019’s 728.7 billion, and 35.6% less than the record $806.4 billion in 2018.</li></ul><ul style="text-align: left;"><li style="text-align: justify;">Buybacks are expected to significantly increase in 2021, as big banks, via Fed approval for Q1 2021, have returned to the buyback market and more companies continue to look to negate stock options.</li></ul></blockquote><div style="text-align: justify;">Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, also notes, "More companies ventured back into the buyback market as they sought shares to cover
employee options being exercised and prevent dilution. That, combined with buying from cash flow strong companies, resulted in a buyback rebound in the fourth quarter." This increase in the level of buybacks and a resumption of dividend growth is a sign companies are seeing improving cash flow near term, this on the back of an improving economy</div>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-17439379073027077572021-04-13T16:31:00.002-04:002021-04-13T20:38:14.244-04:00Small Improvement In Small Business Optimism, But Large Positive Labor Market Signs<p style="text-align: justify;">The March <a href="https://www.nfib.com/surveys/small-business-economic-trends/">NFIB Small Business Optimism Index</a> increased to 98.2 compared to the prior month reading of 95.8. The report notes seven of the 10 index components had improvements. However, the uncertainty component increased six points as business owners were more uncertain about whether this was a good time to expand and make capital expenditures.</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgzUTzHa8p9ufGAaD8MYTYQf1BKTlrbJU8nMtTXYsyKu7h6b8fsMRd-YsO1XYXtx7dmgItu0-JMJ9GBRUKY8qI6VlZ2t8tFrYgEEXakoO7zDbLit7VI6VPdRYpe_LXG7u5l5gjpWA/s510/NFIB+March+2121.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="382" data-original-width="510" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgzUTzHa8p9ufGAaD8MYTYQf1BKTlrbJU8nMtTXYsyKu7h6b8fsMRd-YsO1XYXtx7dmgItu0-JMJ9GBRUKY8qI6VlZ2t8tFrYgEEXakoO7zDbLit7VI6VPdRYpe_LXG7u5l5gjpWA/s16000/NFIB+March+2121.png" /></a></div><p style="text-align: justify;">A positive in the report is centered around the labor market:</p><p></p><ul style="text-align: left;"><li style="text-align: justify;">22% of firms plan on increasing employment in the next three months.</li><li style="text-align: justify;">42% of owners reported job openings they were unable to fill, a record high.</li></ul><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgygbDjDxOuhql7kZFcgiA-EmhxDxAkebgD-TcfqRnvwK2GvQmLxDUpEDeWVHAI7XbEFkx9FOtzLfSBbpKYzAX3bjVX1qCdaADHf_3tEKlzEBXUC1tRooWP5Z-V7Gnlc6RisJ8RBA/s627/NFIB+jobs+hard+to+fill+March+2021.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="627" data-original-width="510" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgygbDjDxOuhql7kZFcgiA-EmhxDxAkebgD-TcfqRnvwK2GvQmLxDUpEDeWVHAI7XbEFkx9FOtzLfSBbpKYzAX3bjVX1qCdaADHf_3tEKlzEBXUC1tRooWP5Z-V7Gnlc6RisJ8RBA/s16000/NFIB+jobs+hard+to+fill+March+2021.png" /></a></div><p style="text-align: justify;">This positive labor component in the small business survey coincidences with the <a href="https://disciplinedinvesting.blogspot.com/2021/04/positive-job-market-developments.html">JOLTS release I wrote about last week</a>. In that post, job openings of 7.4 million are approaching the peak job openings level of 7.5 million reached in 2018. A declining trend in the uncertainty level seems to be one missing ingredient that could be the key to maintaining a robust economic/business reopening environment.</p><p></p>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-17055937054903326162021-04-10T14:40:00.004-04:002021-04-10T23:10:05.837-04:00Positive Job Market Developments: Openings And Quit Rate Are Increasing<p style="text-align: justify;">Earlier this week the February <a href="https://www.bls.gov/jlt/#news">Job Openings and Labor Turnover Survey</a> (JOLTS) was released showing job openings continued to increase. For the February period job openings equal nearly 7.4 million and is approaching the peak job openings level of 7.5 million reached in late 2018. This represents a positive sign that economic activity is increasing and businesses are experiencing increasing demand; hence, the need for more employees.</p><span><a name="more"></a></span><div class="separator" style="clear: both; text-align: center;"><span><a name='more'></a></span><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOvZZTYugGpllb081Lk82hkwRaAYICc7ODGQz-XgjD4NAhwlK-rWl54iguUtk2zVpP8iL0ysUBDigjYuklI19KPfDego7RboGhBv5eyNyt_T1xfMyarbFq1zg8oeUN6svXPqU1Ow/s497/jolts+feb+2021.png" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="373" data-original-width="497" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOvZZTYugGpllb081Lk82hkwRaAYICc7ODGQz-XgjD4NAhwlK-rWl54iguUtk2zVpP8iL0ysUBDigjYuklI19KPfDego7RboGhBv5eyNyt_T1xfMyarbFq1zg8oeUN6svXPqU1Ow/s16000/jolts+feb+2021.png" /></a></div><div><br /></div><div style="text-align: justify;">In another sign of a healing job market, the quit rate stands at 3.3 million. Employed individuals generally do not quit a current position and seek employment elsewhere if they believe the job market is weak. Also included on the below chart with the quit rate is the number of unemployed individuals per job opening. This low level of 1.35 unemployed individuals per opening is low and is representative of a tight labor market.</div><div style="text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiprr9aNo0CovcHQjaRFwqAdpBg_rJ2EymY5xT9lzF9aCligTj3Is_yzcCONCP_FkVtUpRwJwNmTCNmd_iQyOkze-mhQIxA36zRQadrTpxP9qNgkbOO5Rkh5ryb5eF6HxL1Nph_gQ/s495/quit+and+unemployed+per+worker.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="372" data-original-width="495" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiprr9aNo0CovcHQjaRFwqAdpBg_rJ2EymY5xT9lzF9aCligTj3Is_yzcCONCP_FkVtUpRwJwNmTCNmd_iQyOkze-mhQIxA36zRQadrTpxP9qNgkbOO5Rkh5ryb5eF6HxL1Nph_gQ/s16000/quit+and+unemployed+per+worker.png" /></a></div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">In conclusion, admittedly too many individuals remain on the sidelines. Of the 22.4 million lost jobs in the three month period from February 2020 to April 2020, only 13.9 million have been regained. However, with more states reopening and some states moving to no operating restrictions, the job market continues to improve. The positive signs reported from the JOLTS data is encouraging and supports the view the U.S. economy continues to expand.</div><div style="text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhTtWihp3GuN-JoGqqkir9HjNf5Z5rpM0OdwON6y7pWth66P2GfkWC3ner5klo1O0Lt94X0xEflHjF2ozxBJw_hMk7gp0gPPvr7YaicwTQorEwVF5GYf4hxXyyTHShuphyphenhyphenHApzKHQ/s497/non+farm+mar+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="376" data-original-width="497" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhTtWihp3GuN-JoGqqkir9HjNf5Z5rpM0OdwON6y7pWth66P2GfkWC3ner5klo1O0Lt94X0xEflHjF2ozxBJw_hMk7gp0gPPvr7YaicwTQorEwVF5GYf4hxXyyTHShuphyphenhyphenHApzKHQ/s16000/non+farm+mar+2021.png" /></a></div>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-61628754919335092032021-04-08T17:47:00.005-04:002021-04-08T17:47:48.773-04:00Individual Investor Sentiment Is Elevated<p style="text-align: justify;">The <a href="https://www.aaii.com/sentimentsurvey">American Association of Individual Investors</a> reported a jump in bullish sentiment to 56.9%. This is the highest bullishness level since the reading reached 59.7% for the weekly reporting period ending January 4, 2018. As the below chart shows, higher levels of bullishness have a tendency to occur near market tops; however, the pullbacks can be brief or short lived. Also, bullish sentiment can get to higher levels as happened in 2003 when bullishness was reported in the low 70 percent level.</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiAkXtolSho7hbWwPfT7im08oFqg17nSqS9_x-wTktCcl2y9ggWsqeisbs1tZumQudmjy19ykz3BoqTJQw5iOW5VYAWPPbWSjlvw_nV3_-jwcphyphenhyphenRboElYJGNDhadwkca6Wf3kSmw/s571/sentiment+4+8+2021.png" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="428" data-original-width="571" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiAkXtolSho7hbWwPfT7im08oFqg17nSqS9_x-wTktCcl2y9ggWsqeisbs1tZumQudmjy19ykz3BoqTJQw5iOW5VYAWPPbWSjlvw_nV3_-jwcphyphenhyphenRboElYJGNDhadwkca6Wf3kSmw/s16000/sentiment+4+8+2021.png" /></a></div><div><br /></div><div style="text-align: justify;">For comparison purposes, the below chart shows bullishness levels during several prior market bubble periods. Readers should note though, sentiment alone is not necessarily a good timing tool; however, it can provide important insight into investor psychology.</div><div style="text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj7MyztoUQHo2RCDhyphenhyphen4xb1ZnJgrvBV3OX94riITK1E4MbrkMz0an9Ur5lAIrFZPJfBwCuwKhiaIyhgwFcH8Ro_h2xpy6tYvtxVwJhFxAZdr0GelLZLAG3xJQP9qI4pOrX8suDaDKw/s641/sentiment+bubbles.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="641" data-original-width="501" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj7MyztoUQHo2RCDhyphenhyphen4xb1ZnJgrvBV3OX94riITK1E4MbrkMz0an9Ur5lAIrFZPJfBwCuwKhiaIyhgwFcH8Ro_h2xpy6tYvtxVwJhFxAZdr0GelLZLAG3xJQP9qI4pOrX8suDaDKw/s16000/sentiment+bubbles.png" /></a></div><div style="text-align: justify;"><br /></div><div><div style="text-align: justify;"><br /></div></div>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-81293040697080701432021-04-03T16:30:00.006-04:002021-04-03T16:30:51.102-04:00So Far, A Better Year For The Dogs Of The Dow<p style="text-align: justify;">
In 2020 the Dogs of the Dow strategy significantly lagged the
return of the broader S&P 500 Index. For the 2020 calendar year the Dow
Dogs returned a minus 8% versus the S&P 500 Index return of 18.4%. Several
factors led to the Dow Dog underperformance. First, the 2020 Dow Dogs held two
energy stocks out of the total ten stock portfolio. Exxon Mobil (<a href="https://finviz.com/quote.ashx?t=XOM">XOM</a>) was down
36% and Chevron (<a href="https://finviz.com/quote.ashx?t=CVX">CVX</a>) was down 29% last year. In the technology space, the two
Dogs were <a href="https://finviz.com/quote.ashx?t=IBM">IBM</a> and Cisco (<a href="https://finviz.com/quote.ashx?t=CSCO">CSCO</a>), down 1.2% and down 3.5%, respectively. For
2021 though, the Dow Dogs have jumped out to a strong start up 12.0% versus the SPDR Dow Jones Industrial Average (<a href="https://finviz.com/quote.ashx?t=DIA">DIA</a>) up 8.9% and
the SPDR S&P 500 Index (<a href="https://finviz.com/quote.ashx?t=SPY">SPY</a>) up 7.5% as seen in the below table.
</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3sElzLDsf2wOAlj1dRE7SEB4U8mjbI0_53r-JO4e8LGNs4mhNQVAjnd8k3s0CW3WLAeDQ_OEv6oO4Kjee3i1hwlQgT3zV_0wZH9r-na6Uu_UuzTO15HWq5E-IImmnfRSfijlQMg/s662/dow+dogs+4+2+2021.png" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="282" data-original-width="662" height="273" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3sElzLDsf2wOAlj1dRE7SEB4U8mjbI0_53r-JO4e8LGNs4mhNQVAjnd8k3s0CW3WLAeDQ_OEv6oO4Kjee3i1hwlQgT3zV_0wZH9r-na6Uu_UuzTO15HWq5E-IImmnfRSfijlQMg/w640-h273/dow+dogs+4+2+2021.png" width="640" /></a>
</div><div style="text-align: center;"><a href="https://docs.google.com/spreadsheets/d/12mkt1NCMDxDHbybId1HSpZE9AVfxoLcfO7ueSyTPwSI/edit?usp=sharing"><i>Data File (.xls)</i></a></div>
<div style="text-align: justify;"><br /></div><div style="text-align: justify;">
The Dogs of the Dow strategy is one where investors select the ten stocks that
have the highest dividend yield from the stocks in the Dow Jones Industrial
Index after the close of business on the last trading day of the year. Once
the ten stocks are determined, an investor invests an equal dollar amount in
each of the ten stocks and holds them for the entire next year. The popularity
of the strategy is its singular focus on dividend yield.</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">Because of this income/yield focus, the Dow Dogs strategy tends to have a
value style bias and this
<a href="https://www.mfs.com/content/dam/mfs-enterprise/mfscom/sales-tools/sales-ideas/mfsp_20yrsa_fly.pdf">value bias contributed to the underperformance</a> in 2020. Last year the Russell 1000 Growth Index was up 38.5% and the
Russell 1000 Value Index was up only 2.8%. Just the opposite is unfolding this
year with the value bias acting as a performance tailwind for the Dow Dog
strategy. Year to date through April 1, the
<a href="https://www.ftserussell.com/products/indices/russell-us-style">Russell 1000 Value index</a>
is up 12.3% and the Russell 1000 Growth Index is up 2.6%.</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">The growth style has
dominated value since the end of the 2008/2009 financial crisis. If this recent rotation to value and its outperformance trend
continues over the balance of this year, the Dow Dogs strategy may be a
winning one in 2021.
</div>
<div style="text-align: center;"><br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnnynv0mgE0CMWj2tgpAL-Udlad7yzGUM7_UwCq9_36vN8EnpZGSwE55vzbcBGpRaLI2KPlFRLq5hWL_jlbxPZxtM75EDv3WQYjxkUaWBp5MexNcwIB6244oXK62_HPSdCRtF_1A/s557/growth+versus+value+4+2+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="417" data-original-width="557" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnnynv0mgE0CMWj2tgpAL-Udlad7yzGUM7_UwCq9_36vN8EnpZGSwE55vzbcBGpRaLI2KPlFRLq5hWL_jlbxPZxtM75EDv3WQYjxkUaWBp5MexNcwIB6244oXK62_HPSdCRtF_1A/s16000/growth+versus+value+4+2+2021.png" /></a>
</div>
David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-71554271108354613992021-03-31T23:23:00.002-04:002021-03-31T23:23:32.961-04:00A Change In Equity Market Leadership Is A Positive<p style="text-align: justify;">One favorable aspect of the current equity market is the broader favorable performance across a wider range of asset classes and investment styles. I <a href="https://disciplinedinvesting.blogspot.com/2020/09/mega-cap-stocks-run-into-headwind.html">wrote about this in mid September last year</a> and at the time raised the question whether this rotation or change in leadership had more room to run. The below chart clearly shows that a shift in leadership has carried through the first quarter of this year. The blue line on the chart represents the average total return of the six stocks, Facebook (<a href="https://finviz.com/quote.ashx?t=FB">FB</a>), Amazon (<a href="https://finviz.com/quote.ashx?t=AMZN">AMZN</a>), Netflix (<a href="https://finviz.com/quote.ashx?t=NFLX">NFLX</a>), Google (<a href="https://finviz.com/quote.ashx?t=GOOGL">GOOGL</a>), Microsoft (<a href="https://finviz.com/quote.ashx?t=MSFT">MSFT</a>) and Apple (<a href="https://finviz.com/quote.ashx?t=AAPL">AAPL</a>). Collectively, these six stocks are trailing in performance relative to the other asset classes shown. Up until September though, the asset class returns were essentially reversed as seen in the second chart.</p><span><a name='more'></a></span><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjubn96XezZqe8dCBbyjAjH9ltXhbPjz74y9nmn5omo_4JjN0KvBgta3HUhyphenhyphenvxIvkOk6ILqCKWyTfCe_1Z27APjVMlAq3fDOkE_qPLd1KsAPXqybyMfgaTipLXAy5NcLnP3SqNSZA/s501/fang+9+1+to+3+31+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="379" data-original-width="501" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjubn96XezZqe8dCBbyjAjH9ltXhbPjz74y9nmn5omo_4JjN0KvBgta3HUhyphenhyphenvxIvkOk6ILqCKWyTfCe_1Z27APjVMlAq3fDOkE_qPLd1KsAPXqybyMfgaTipLXAy5NcLnP3SqNSZA/s16000/fang+9+1+to+3+31+2021.png" /></a></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhLzTzB1sHC576cDa6sBDL2l6YEnxqW0NjF5CmqlJZdjEW2Om6h7OERF5FS_AT2aUAEyDz8-lfhddvJzSoLoy7nfA9GKj2_4oogofS6uFRJMqtDoovbWiGzUOJKfmvizTJ-SSmiLg/s502/fang+return+3+31+2021.png" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="379" data-original-width="502" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhLzTzB1sHC576cDa6sBDL2l6YEnxqW0NjF5CmqlJZdjEW2Om6h7OERF5FS_AT2aUAEyDz8-lfhddvJzSoLoy7nfA9GKj2_4oogofS6uFRJMqtDoovbWiGzUOJKfmvizTJ-SSmiLg/s16000/fang+return+3+31+2021.png" /></a></div><br /><p style="text-align: justify;">This broader participation is also showing up in better performance with other strategies like buyback focused ones or equal weighted strategies. The below chart displays the twelve month performance of a couple of these other strategies and both the Invesco Buyback Achievers ETF (<a href="https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=investors&productId=pkw">PKW</a>) and Invesco S&P 500 Equal Weight ETF (<a href="https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=investors&productId=RSP">RSP</a>) are outperforming the cap weighted S&P 500 Index.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgBZgU4AMmdNyN-MxzjdAuKRsaBP2n0Wvl5kVYWtvJBhVqgv3yGPr2gxu9ORRVIY337b6BkS1vg0pKo4Kr1js6cTZy3RRZ5-84nnd91CgJXtEBF8YRwPd4RZlR-PxJR68zM5V1Q9A/s604/buyback+quality+etc+line+chart.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="357" data-original-width="604" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgBZgU4AMmdNyN-MxzjdAuKRsaBP2n0Wvl5kVYWtvJBhVqgv3yGPr2gxu9ORRVIY337b6BkS1vg0pKo4Kr1js6cTZy3RRZ5-84nnd91CgJXtEBF8YRwPd4RZlR-PxJR68zM5V1Q9A/s16000/buyback+quality+etc+line+chart.png" /></a></div><br /><p style="text-align: justify;">And finally, the safe haven bond market has been anything but defensive. The last two categories on the below bar chart represent the performance of 10 and 30 year U.S. Treasury bonds. The move higher in longer term rates has certainly had a negative impact on longer term bond returns.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEizqouAQQkzhyBkwN4ZeXrOhwUAuNQz22BwlajvE288mXCsmSalMUYSxUM0YUNtB6sL-I_iyNh7cBQPzqnIXmw6BDBAxRgPz5iC5aRvgGQ4tY5lYVP8E6psxJ8aYdg3A5aRa6ffcA/s448/asset+class+returns+Q1+2021.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="347" data-original-width="448" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEizqouAQQkzhyBkwN4ZeXrOhwUAuNQz22BwlajvE288mXCsmSalMUYSxUM0YUNtB6sL-I_iyNh7cBQPzqnIXmw6BDBAxRgPz5iC5aRvgGQ4tY5lYVP8E6psxJ8aYdg3A5aRa6ffcA/s16000/asset+class+returns+Q1+2021.png" /></a></div><br /><p style="text-align: justify;">The one takeaway from this for investors is broader market participation is a positive sign for equities. I repeat this often though, and that is, the market will not go up in a straight line in spite of the strong returns since the March low last year.</p><p style="text-align: justify;"><br /></p><p style="text-align: justify;"><i>Disclosure: firm and/or family long AAPL, GOOGL, MSFT, RSP</i></p>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-28045574792105876852021-03-30T21:39:00.004-04:002021-03-30T22:30:34.266-04:00The Consumer Is Spending, A Major Driver To The Economic Recovery<p style="text-align: justify;">As is often said actions speak louder than words and with the consumer at the moment, both survey results and spending activity are moving in the same direction. The consumer accounts for 70% of GDP or the economy, so as the consumer goes, so goes the economy. Today's Conference Board Consumer Confidence reading for March is reported at 109.7, up from 90.4 in the previous month. Consumer confidence has yet to reach the higher pre-pandemic level, but it is moving up from its low after not declining as much as it did during the financial crisis. CEO confidence on the other hand is near a record high.</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3amoWjQjb1zzDbIa1sqVxcQjILLILKSMo3VtoGsFko3idKGiN03UPrOv3BibP9F87qq357889-d-NBEdWzecivLG0q1BpUNnMLhiQEYlXGeStphhrdP1uSY2yvGJSxNwRtaiWrA/s496/consumer+and+ceo+confidence+3+30+2021.png" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="385" data-original-width="496" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3amoWjQjb1zzDbIa1sqVxcQjILLILKSMo3VtoGsFko3idKGiN03UPrOv3BibP9F87qq357889-d-NBEdWzecivLG0q1BpUNnMLhiQEYlXGeStphhrdP1uSY2yvGJSxNwRtaiWrA/s16000/consumer+and+ceo+confidence+3+30+2021.png" /></a></div><div><br /></div><div style="text-align: justify;">Two big ticket purchases for the consumer are a home and an automobile. In the first chart below, home sales are near a record level at an annual rate of 6.2 million. Limiting higher home sales and pushing sale prices higher is record low housing inventory. On the same chart below homes available for sale are a record low 1 million units.</div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgBnu0vEAoyqCEHTfS4MAOPFp-WNJVqX9UHOxv_5WgYUtMP-DaUoCJlPY54KDbCIE3134BKczDGxZ0gZwIcTKMNiIOl4ESRbxMNJJtElPiJYMnewEMp1xy7HbyKAW20UPAnkZIwPw/s511/home+sales.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="383" data-original-width="511" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgBnu0vEAoyqCEHTfS4MAOPFp-WNJVqX9UHOxv_5WgYUtMP-DaUoCJlPY54KDbCIE3134BKczDGxZ0gZwIcTKMNiIOl4ESRbxMNJJtElPiJYMnewEMp1xy7HbyKAW20UPAnkZIwPw/s16000/home+sales.png" /></a></div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">The next chart below shows unit vehicle sales have returned to near pre-pandemic levels at 16.1 million units. As is the case with housing, auto inventories are running at low levels relative to sales with the auto inventory to sales ratio also near a record low of 1.9:1. in addition to the demand for automobile purchases, the recent computer chip shortage is <a href="https://www.thedrive.com/news/39619/chip-shortage-continues-to-wreak-havoc-on-new-car-production">limiting new car production</a>.</div></div><div style="text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgHamVSJ8FZh5abSZ_l8UGFNuOP-_njvdrJUJWFWhI56QbKqhL6ehQ-ukFbUqCleAHFvge7CNZfDIEf_UEFdY-HUTgskLZO9TKxooRm0mI7WCslKbmSTMJYsvRYlABV5Gcs3PvQyw/s507/auto+sales+inventory.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="383" data-original-width="507" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgHamVSJ8FZh5abSZ_l8UGFNuOP-_njvdrJUJWFWhI56QbKqhL6ehQ-ukFbUqCleAHFvge7CNZfDIEf_UEFdY-HUTgskLZO9TKxooRm0mI7WCslKbmSTMJYsvRYlABV5Gcs3PvQyw/s16000/auto+sales+inventory.png" /></a></div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">This last chart on retail sales shows the sharp recovery, a 'V-shaped' recovery, that has occurred with broader retail sales. The February retail sales of $561 billion is significantly above the February pre-pandemic level of $527.5 billion.</div><div style="text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiuNTuN7kwIDDJcZ4FCCVA50XekSnxA3YTXCjj4peAXzLBYl-dRELpv7fQMMKfLqiabEN-3gVdfUdEkdjWI4nPzu-tHheHuv1-z3hlkYmQKw9EUKLfqT5GI7F9ws6XFHSrQUuVpQ/s513/retai+lsales+February+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="384" data-original-width="513" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiuNTuN7kwIDDJcZ4FCCVA50XekSnxA3YTXCjj4peAXzLBYl-dRELpv7fQMMKfLqiabEN-3gVdfUdEkdjWI4nPzu-tHheHuv1-z3hlkYmQKw9EUKLfqT5GI7F9ws6XFHSrQUuVpQ/s16000/retai+lsales+February+2021.png" /></a></div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">With the consumer seemingly not limiting spending, they seem to be in decent financial shape too with the household financial obligations debt service level as a percentage of disposable income at 14.7%. This is down sharply from the financial crisis level of 18.1%.</div><div style="text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgXsToKHyEFbEDrLZjNeMtm4E9MmFNSvC1cLTgQrG9SPmJWaa0Tl53yL19U_NimQovUpVln73fc2wmfgDws_k4dPe-j6_gmoP_tG7_lSWkFnfcsjwSsNobKFmFu_lBwSrS1ebTCVA/s511/fin+obligation+ratio.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="383" data-original-width="511" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgXsToKHyEFbEDrLZjNeMtm4E9MmFNSvC1cLTgQrG9SPmJWaa0Tl53yL19U_NimQovUpVln73fc2wmfgDws_k4dPe-j6_gmoP_tG7_lSWkFnfcsjwSsNobKFmFu_lBwSrS1ebTCVA/s16000/fin+obligation+ratio.png" /></a></div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">And lastly, with many consumers sitting at home through the pandemic, some spending has been delayed, like travel and leisure, for example. The end result is consumer have been saving more of their disposable income; hence, building up saving dollars, some to be spent as more of the economy is reopened.</div><div style="text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiEBNnPcGJ_xyzTJn7dIWSpz-SniLbWUBP99eSrsFSCgHxfifQFBXYUdXS8w-LZku2Lwy_k9fLdkZYNL936-KOtDZhG8_5_jy8Pj_PErNTGBEDDEgVwCpSUTuOeSMdpULVpRfnTDA/s511/savings+3+30+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="383" data-original-width="511" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiEBNnPcGJ_xyzTJn7dIWSpz-SniLbWUBP99eSrsFSCgHxfifQFBXYUdXS8w-LZku2Lwy_k9fLdkZYNL936-KOtDZhG8_5_jy8Pj_PErNTGBEDDEgVwCpSUTuOeSMdpULVpRfnTDA/s16000/savings+3+30+2021.png" /></a></div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">In summary, an important element to economic growth is the consumer and by many measures, the consumer is in good shape financially. This should lead to continued growth in the economy as the year unfolds, all else being equal.</div>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-23349039132102155752021-03-14T22:47:00.001-04:002021-03-14T22:49:14.756-04:00Oil Inventory Level Remains High Potentially Limiting Steeper Rise In Energy Prices<p style="text-align: justify;">A number of factors will influence the price of oil over time, but the supply level and active rig count provide useful insight. Other variables come into play as well, like Middle East conflicts and the level of the U.S. Dollar. The price of West Texas Crude has increased from around $15 per barrel in April of 2020 to its current $66 per barrel. On the surface it seems oil inventory levels are at a sufficiently high level, as the green line in the below chart indicates, that oil prices should not continue to trend higher at a pace similar to the pace over the last year. With the rig count beginning to turn higher, additional oil supply will eventually find its way onto the market; however, there is a lag in oil production growth vis-à-vis rig count growth.</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgoWXjHicC_0WFUh18g_m5A2vZ-yTaHHWmPKsYYrrbShGMtaJCPMXt0Sg3VKWlNylrY39wvCgUDm4QakFNXHNGxD9FRSmcPPQmd2-n4pzQLrHg-ciu8ieBN9gI-XQqAa0WElyVEJA/s526/oil+price+rig+etc+3+5+2021.png" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="398" data-original-width="526" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgoWXjHicC_0WFUh18g_m5A2vZ-yTaHHWmPKsYYrrbShGMtaJCPMXt0Sg3VKWlNylrY39wvCgUDm4QakFNXHNGxD9FRSmcPPQmd2-n4pzQLrHg-ciu8ieBN9gI-XQqAa0WElyVEJA/s16000/oil+price+rig+etc+3+5+2021.png" /></a></div><div><br /></div><div style="text-align: justify;">The largest use of oil is in transportation, with gasoline accounting for about 45% of total U.S. petroleum consumption <a href="https://www.eia.gov/energyexplained/oil-and-petroleum-products/use-of-oil.php">according to the EIA</a>. In 2019 nearly 70% of petroleum consumption was used in transportation. With the move higher in the price of a barrel of oil, the consumer is paying more for a gallon of gasoline to fill up their automobile. At the beginning of 2020 the average price of a gallon of gasoline was under $2.00. Today, the per gallon price of gasoline has increased to $2.86. This represents roughly a 50% increase in the gasoline pump price. In spite of this increase, the price remains far below the over $4.00 price reach in the summer of 2008.</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiHc3o5JUJ4qIppiW6e_Tx8ZxJjkBERoSw4Nhm41u2XFCCErIFF367Q4oTolIUeLNB2mfF47XYCts_qQoeklJElulyhEu0ppDNc4gdop5957_e3D7J9gTUuWPg7o_BnpKKMhf72Gw/s503/gasoline+per+gallon+price.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="377" data-original-width="503" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiHc3o5JUJ4qIppiW6e_Tx8ZxJjkBERoSw4Nhm41u2XFCCErIFF367Q4oTolIUeLNB2mfF47XYCts_qQoeklJElulyhEu0ppDNc4gdop5957_e3D7J9gTUuWPg7o_BnpKKMhf72Gw/s16000/gasoline+per+gallon+price.png" /></a></div><br /><p style="text-align: justify;">Consumers are important to economic growth, accounting for nearly 70% of the economy, and higher gas prices reduce the consumer's discretionary spending. On the positive side though, according to Tony Dwyer, Chief Market Strategist at Canaccord Genuity, energy spending by the consumer garners less of their disposable income as seen below.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh1FZVSSCIzwWUuDCKiUhDpRLEkVgWbnGkp9k6xe0GhEazrowu746JtJpFQpOe9-rfBn6ZDT_Tbp_zKN9zJd4BKl6ebeVSdu9R7CGkaPCWYuO0gY2Paro8tMs6p6WDWiqlhu0ITXA/s561/energy+%2525+disposable+income.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="250" data-original-width="561" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh1FZVSSCIzwWUuDCKiUhDpRLEkVgWbnGkp9k6xe0GhEazrowu746JtJpFQpOe9-rfBn6ZDT_Tbp_zKN9zJd4BKl6ebeVSdu9R7CGkaPCWYuO0gY2Paro8tMs6p6WDWiqlhu0ITXA/s16000/energy+%2525+disposable+income.png" /></a></div><div style="text-align: center;"><i>Source: <a href="https://www.cnbc.com/2019/09/17/why-the-oil-price-spike-shouldnt-hit-us-consumer-spending.html">CNBC</a></i></div><p style="text-align: justify;">Lastly, gasoline inventory remains elevated too and not unlike the crude oil inventory level noted earlier. This higher inventory will provide some headwind to higher prices.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLv07wlXhIo_BjGWZ3loCXAPicVoFrjIaeKa5kd9Ih-fmOLk5e7dD6mwGmIMzwXTdJ5VYp_psvG8QjEt1vtKKEtoetCtnhjxpKxnvfPX7Rbb2X5ldAtevEWwFJdKHv0j-nIdYg2g/s528/gas+inventory+3+5+2021.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="397" data-original-width="528" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLv07wlXhIo_BjGWZ3loCXAPicVoFrjIaeKa5kd9Ih-fmOLk5e7dD6mwGmIMzwXTdJ5VYp_psvG8QjEt1vtKKEtoetCtnhjxpKxnvfPX7Rbb2X5ldAtevEWwFJdKHv0j-nIdYg2g/s16000/gas+inventory+3+5+2021.png" /></a></div><p style="text-align: justify;">For investors, often times the direction of the change in these oil figures can be as important as the levels. So, as economies continue to open more and pent up demand results in more activity, a spike in energy prices can still occur. For the moment though, oil inventory levels seem sufficient to provide some constraint to higher prices that would impact the consumer.</p>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-50091689679019885692021-03-07T21:05:00.002-05:002021-03-07T22:11:40.488-05:00Equity Market May Be Entering A Period Of Further Strength<p style="text-align: justify;">Going back to 2016 I was writing about the current bull market that began in 2013 and how it resembled the bull market of the 1950's and 1980's. At the time of those <a href="https://disciplinedinvesting.blogspot.com/2016/11/equity-market-beginning-to-resemble.html">earlier posts</a> I certainly did not foresee the pandemic and a .5% yield on the 10-year U.S. Treasury. Nonetheless, as this current recovery unfolds, a rise in the 10-Year U.S. Treasury yield has occurred and may continue. Higher interest rates in and of themselves are not necessarily a headwind for stocks though, especially when rising from a very low level.</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEid5vuXMT6unaIykItzhC4CphtvjgoPldfktV4vg2r2R10Mbk_fWE-Lp3llT4x0U4PBAGMi4Bc4U738ZXl7eXumfVz-2IB0ljVyIExCCN1uUzaFgSnX1G4T4wIfj2qGvJcEuiQ4Tw/s611/1950s+yield+and+stocks+truist.png" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="305" data-original-width="611" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEid5vuXMT6unaIykItzhC4CphtvjgoPldfktV4vg2r2R10Mbk_fWE-Lp3llT4x0U4PBAGMi4Bc4U738ZXl7eXumfVz-2IB0ljVyIExCCN1uUzaFgSnX1G4T4wIfj2qGvJcEuiQ4Tw/s16000/1950s+yield+and+stocks+truist.png" /></a></div><p style="text-align: justify;">The higher yield simply is not enough to provide competition to stocks. Also, the higher yield can be the bond market telegraphing a stronger economy. Of course specific events were different in the 1950's, the decade following the end of World War II. However, satisfying pent up demand was a part of the economic strength in the 1950's. As I <a href="https://disciplinedinvesting.blogspot.com/2016/11/equity-market-beginning-to-resemble.html">wrote in the 2016 post</a>:</p><i><blockquote style="text-align: justify;">"The decade of the 1950's followed World War II and pent up demand saw the Gross National Product in the U.S. more than double from 1945 to 1960. Government spending in the 1950's was targeted at construction of the interstate highway system, building of schools and an increase in military spending."</blockquote></i><div style="text-align: justify;">Equity markets tend to run in cycles and a secular bull market could run <a href="https://am.jpmorgan.com/blob-gim/1383635875343/83456/PI-EQT-SECULAR_2020_r2.pdf">fifteen years or longer</a>. With that assumption the below chart shows the current bull market might be nearing a period of further strength. History does not repeat exactly, but events can have a coincidence of rhyming.</div><div style="text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggeJUNMA8SAQBEeJeWLKEihuLci2nksDr1wh5NzaSKjrwCf9gsM3PeIja3xb9g0Ya2eW_j4wwIcqGwvyVCIH7DofPVnOoCGIgMimlvEX-pWJm2AzbyObYRITk6QA0okNlgH43pZQ/s517/50s+80s+2013+as+of+3+5+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="405" data-original-width="517" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggeJUNMA8SAQBEeJeWLKEihuLci2nksDr1wh5NzaSKjrwCf9gsM3PeIja3xb9g0Ya2eW_j4wwIcqGwvyVCIH7DofPVnOoCGIgMimlvEX-pWJm2AzbyObYRITk6QA0okNlgH43pZQ/s16000/50s+80s+2013+as+of+3+5+2021.png" /></a></div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">Also supporting a favorable equity market is the continued health of the economy. One research firm we follow is Cornerstone Macro and they are increasing their view for U.S. GDP growth in Q4 2021 to 9%, up from 7%. A number of reasons were cited in their recent report, but some of the obvious ones are massive stimulus at $1.9 trillion, continued vaccine rollout and some shutdown states continuing to reopen, e.g., New York and California. Well, guess where that 9% GDP growth rate falls historically, the 1950's and early 1980's.</div><div style="text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCvXCCHR0tDdSgy909b9Jy_Uxmh21xM6VChKgmb8veoeNULeU35Xo_sriqz5CE5Vonl7snVFg6VU9KaHBi4VF5CeXkwG3XFQKgG9CiGnRWgkzEzXR9CTXhK8h7Mmd5xMUMbBuFvQ/s475/gdp+est+4q+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="380" data-original-width="475" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCvXCCHR0tDdSgy909b9Jy_Uxmh21xM6VChKgmb8veoeNULeU35Xo_sriqz5CE5Vonl7snVFg6VU9KaHBi4VF5CeXkwG3XFQKgG9CiGnRWgkzEzXR9CTXhK8h7Mmd5xMUMbBuFvQ/s16000/gdp+est+4q+2021.png" /></a></div><div style="text-align: justify;"><br /></div><div><div style="text-align: justify;">The consumer accounts for 70% of the economy (GDP) and more stimulus is headed consumers' way. This is on top of the enormous savings stockpile sitting on the sidelines and I highlighted in a post last week, <a href="https://disciplinedinvesting.blogspot.com/2021/03/spiking-punch-bowl.html">Spiking The Punch Bowl</a>. The equity market has had a strong recovery since the March 23, 2020 low and some additional downside would not be a surprise. On the other hand, the mantra of "don't fight the Fed", and I will throw the government in here too, still is an adage to be mindful of.</div></div>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-834563810365970892021-03-06T16:04:00.008-05:002021-03-06T16:04:56.805-05:00Earnings Growth Supports Strong Equity Market Advance<p style="text-align: justify;">Fourth quarter 2020 earnings reports are nearing an end as 495 companies in the S&P 500 Index have reported results. Refinitiv's report dated March 5, 2020 notes results have come in better than history. Nearly 80% of companies have reported earnings above analyst estimates, exceeding the long-term average of 65%. Expectations for the next two quarters shows earnings growth accelerating with the second quarter 2021 estimate currently indicating growth of 51.2% on a year over year basis.</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_yhm0M1MwDR6SGEi5StfWgOOS06KnKaSTaabJ_EGvJ08YH-zhuN1iVnFG5ewKA9iYbl5ewrXJzxfsJ9wNTz9PCE1aswoEuzhFEOan5qC05XL1McW3JI7ZicP8NBlJ-L-jWSv2_w/s680/qtly+earnings+gr+3+6+2021.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="286" data-original-width="680" height="269" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_yhm0M1MwDR6SGEi5StfWgOOS06KnKaSTaabJ_EGvJ08YH-zhuN1iVnFG5ewKA9iYbl5ewrXJzxfsJ9wNTz9PCE1aswoEuzhFEOan5qC05XL1McW3JI7ZicP8NBlJ-L-jWSv2_w/w640-h269/qtly+earnings+gr+3+6+2021.png" width="640" /></a></div><br /><p style="text-align: justify;">The below chart shows the 12-month forward earnings growth estimate along with the S&P 500 Index. The strong earnings recovery supports a similar recovery in the S&P 500 Index. S&P earnings for calendar year 2021 are estimated to equal $174 versus $141 in 2020. The earnings expectation for calendar year 2022 is now over the $200 threshold at $201. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpBO5x_Jc7Oc-i9oi0EjV9lmw8wvA6TNF8QBi2iFjiBEVSltkmZHBE1EKRaMbwPRTE32xKNEET4mEgwLm7ZaW3x5lYwP346yHO20exeZMlPmFexwCO4R3IufSyL6nckhhd5tVEEg/s537/earnings+growth+wit+hSP.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="402" data-original-width="537" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpBO5x_Jc7Oc-i9oi0EjV9lmw8wvA6TNF8QBi2iFjiBEVSltkmZHBE1EKRaMbwPRTE32xKNEET4mEgwLm7ZaW3x5lYwP346yHO20exeZMlPmFexwCO4R3IufSyL6nckhhd5tVEEg/s16000/earnings+growth+wit+hSP.png" /></a></div><div><br /></div><div style="text-align: justify;">It does seem by some measures the equity market is priced for perfection. With the strong and steady recovery in earnings in this still low interest rate environment though, stocks should continue to deliver acceptable returns. The equity market does not move higher in a straight line, so market volatility should be expected though.</div>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-79932761501099534562021-03-05T16:03:00.006-05:002021-03-05T16:03:56.507-05:00Spiking The Punch Bowl<p style="text-align: justify;">A nearly $2 trillion Covid relief package is working its way through Congress. There is differing commentary about the amount of the stimulus that is going to "Covid" relief, but assuming much of it is relief in some form or the other, how does it get spent? Is the relief targeted? In aggregate the stimulus that has been sent to individuals prior to this most recent package does not all seem to have been spent. The below chart shows the spike higher in the savings rate, currently running over 20% of disposable personal income.</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg4OvlHe2I7gM3QOCjpd2I6b6_wupBIPpbaXXMOIIxT6Lvi-Yu-aATbYvDzfkiEOC2bU8xWv0aakrMguwhdxPJG6ByzTAtKbFBan33bYaT4dLtFnTnHZrPGIgPNDhuFYPu7i2gF3w/s486/savings+and+income+3+4+2021.png" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="367" data-original-width="486" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg4OvlHe2I7gM3QOCjpd2I6b6_wupBIPpbaXXMOIIxT6Lvi-Yu-aATbYvDzfkiEOC2bU8xWv0aakrMguwhdxPJG6ByzTAtKbFBan33bYaT4dLtFnTnHZrPGIgPNDhuFYPu7i2gF3w/s16000/savings+and+income+3+4+2021.png" /></a></div><p style="text-align: justify;">The dollar level of actual savings is running at an annual rate of $3.9 trillion. At the height of the pandemic the savings rate was over $6 trillion. Given the significant increase in the savings rate it seems some of the stimulus is being set aside in savings. That raises the questions of <a href="https://www.marketwatch.com/story/this-is-pure-politics-fewer-americans-will-a-stimulus-check-this-time-around-heres-exactly-how-many-11614884372">how effective are these stimulus programs</a>.</p><p style="text-align: justify;">Recently, I have written posts highlighting the strength of the economy and the fact much of the economic data being reported is better than expectations. However, it is clear many individuals remain unemployed and some financial assistance is needed for these individuals.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgg6MIrCLsJSqe-kF8nfUC6YGUM6TnbDnFp5Sij3x5gJWYcD6w4ZPlmmNgEfciiWuQzNvD7AH9COwCgEokJJ8113KEyHZvCRY3hCconyKs1fjH_kJYrl7PI4-ep1B4jbTy7raYd_g/s487/claims+3+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="366" data-original-width="487" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgg6MIrCLsJSqe-kF8nfUC6YGUM6TnbDnFp5Sij3x5gJWYcD6w4ZPlmmNgEfciiWuQzNvD7AH9COwCgEokJJ8113KEyHZvCRY3hCconyKs1fjH_kJYrl7PI4-ep1B4jbTy7raYd_g/s16000/claims+3+2021.png" /></a></div><div><br /></div><div style="text-align: justify;">What is being done to facilitate getting unemployed individuals back to work? The participation rate seems to have stalled and remains below the employment levels in place prior to the pandemic induced shutdown. On the other hand, this morning's nonfarm payroll report indicated February payrolls rose 379,000, far exceeding Econoday's 175,000 consensus estimate.</div><div><br /></div><div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjbt5Re-B9meXlV1UDeAPea1lQIMMJ-2R5HKkO6keZ0vxlSlRpISqXBj8Z6O40K91Dp3QExX62FO4C4Hm_5Eh4ucY7M6jAhTr-b1jHlylg3jf1r2O9ZzsRs4x5p3g8tEHhDVxpOGA/s0/participation+rate+3+2021.png" style="display: block; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="397" data-original-width="530" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjbt5Re-B9meXlV1UDeAPea1lQIMMJ-2R5HKkO6keZ0vxlSlRpISqXBj8Z6O40K91Dp3QExX62FO4C4Hm_5Eh4ucY7M6jAhTr-b1jHlylg3jf1r2O9ZzsRs4x5p3g8tEHhDVxpOGA/s0/participation+rate+3+2021.png" /></a></div><br /><div style="text-align: justify;">The first chart above shows continuing unemployment claims plus the pandemic assistance category has been trending higher. Today's employment report though suggests an improving job market lies ahead. With the strong economy and improving employment market, a $2 trillion stimulus appears to be taking place too late in the recovery cycle.</div>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-90196522229133923302021-03-03T20:13:00.008-05:002021-03-05T00:02:45.906-05:00Economically Sensitive Stock Market Sectors Lead Performance<p style="text-align: justify;">A look at S&P 500 Index sector returns after the market close on Thursday shows since the March 23, 2020 low, energy is the top performing sector up 117.6% and followed by materials and financials. The industrial and technology sectors round out the top five performing sectors as seen below.</p><span><a name='more'></a></span><div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgI2CwHVYDd0gEH0cEm0pXevEkLwmAPSdtht9ssyb_WY7AnS_zQNOuAkReT_kX0afdkNgbV5rNHKlCIf0zr4DN22zV8I-wxuR9t5QMk5fUfiJWZyEuPuj56xyQL_9TIsr-aqba53Q/s0/sector+ret+3+23+2020+to+3+3+2021.png" style="display: block; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="388" data-original-width="465" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgI2CwHVYDd0gEH0cEm0pXevEkLwmAPSdtht9ssyb_WY7AnS_zQNOuAkReT_kX0afdkNgbV5rNHKlCIf0zr4DN22zV8I-wxuR9t5QMk5fUfiJWZyEuPuj56xyQL_9TIsr-aqba53Q/s0/sector+ret+3+23+2020+to+3+3+2021.png" /></a></div><p style="text-align: justify;">On a year to date basis, again, energy is the top performing sector up 31.7% followed by financials, communication services, industrials and materials. These top performing sectors since 3/23/2020 and year to date are economically sensitive or cyclically oriented ones suggesting investors may view the companies in the economically sensitive sectors more favorably. Year to date, technology continues to slip in performance and is now negative for the year down .7%.</p><div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiIztXGY1e1YnA6mw61pgykvvsWmjWjsksh8k7zjX3HjsoG6wst3kmqpNj-Cd0_vQaUgivTQpn8RB6lD_LEs-I8G9CQWopxwXcDoYisia6H_OkMywNkosr8kP1d549uTwoV5u4D5w/s0/sector+ret+ytd+3+2+2021.png" style="display: block; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="388" data-original-width="465" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiIztXGY1e1YnA6mw61pgykvvsWmjWjsksh8k7zjX3HjsoG6wst3kmqpNj-Cd0_vQaUgivTQpn8RB6lD_LEs-I8G9CQWopxwXcDoYisia6H_OkMywNkosr8kP1d549uTwoV5u4D5w/s0/sector+ret+ytd+3+2+2021.png" /></a></div><p style="text-align: justify;">Finally, the below chart shows shows the Citigroup Economic Surprise Indices for several regions around the world. Readings above zero indicate the data is being reported better than the expected. All four of the regains shown are indicating a large amount of the economic data is surprising to the upside.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCF-hbU8jRQDjWyKxP7BAcGv8y3SQJH4e83UWq0y6SWo-QflmQtNQSV4lQppL5PckJ71B8GB8SNuIoUCDpolz_52Hu18kRBha7Pvda0s-4_yjxVXmRl_j7RHtIItNKLHY3MlevKw/s472/citi+surprise+3+3+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="354" data-original-width="472" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCF-hbU8jRQDjWyKxP7BAcGv8y3SQJH4e83UWq0y6SWo-QflmQtNQSV4lQppL5PckJ71B8GB8SNuIoUCDpolz_52Hu18kRBha7Pvda0s-4_yjxVXmRl_j7RHtIItNKLHY3MlevKw/s16000/citi+surprise+3+3+2021.png" /></a></div><div><br /></div><div style="text-align: justify;">In conclusion, based on the first two sector performance charts, returns have been strong from the March 2020 low as well as this year. The economic data also supports a strengthen economic environment. A market pullback would not be a surprise and would certainly be healthy; however, if many are waiting for a pullback, it could come from a higher price level.</div>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-26893996211850708442021-02-27T23:35:00.004-05:002021-02-27T23:42:11.168-05:00Travel And Leisure Companies Should Benefit From Satisfying Pent-Up Demand<p style="text-align: justify;">The travel and leisure segments of the market may be some of the most value oriented ones as their business has essentially been shutdown due to the COVID-19 virus. As the global economy began to be shuttered in February last year, travel companies like Carnival (<a href="https://www.finviz.com/quote.ashx?t=CCL&ty=c&ta=1&p=d">CCL</a>) and Norwegian Cruise Line (<a href="https://www.finviz.com/quote.ashx?t=NCLH&ty=c&ta=1&p=d">NCLH</a>) experienced significant price contractions as seen in the below chart. When comparing their returns since the beginning of 2020, many of the stocks remain down far more than the broader market or S&P 500 Index. One outlier is Expedia that is up 49.5% versus the S&P 500 Index return of 20.4% since the beginning of 2020.</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiERVt-wrdh5VRZsRmU27ol_-HaPdHAgBJjK7qGJAkBA_qdRdXKzEZR2pR_mvtFacWi2i9GibclJAUX8Sqjj7LRI93Ui69NFd_3ePflLTrtUktBFqBW1MugUMl0SDgW3yt8qNNxHw/s482/travel+leisure+since+12+31+2019.png" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="361" data-original-width="482" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiERVt-wrdh5VRZsRmU27ol_-HaPdHAgBJjK7qGJAkBA_qdRdXKzEZR2pR_mvtFacWi2i9GibclJAUX8Sqjj7LRI93Ui69NFd_3ePflLTrtUktBFqBW1MugUMl0SDgW3yt8qNNxHw/s16000/travel+leisure+since+12+31+2019.png" /></a></div><p style="text-align: justify;">When comparing the company returns for a few travel/leisure firms since March 23, 2020, all have outperformed the S&P 500 Index as seen in the next chart below. Clearly, the market believes the pessimism shown towards these companies was overdone in the February/March selloff last year.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhkphK8G9dVlRP1POr7XSrkFIxTAgpXjMt7N8hDspaoMcTDVj693d39KKTOlgQvQNwk9tqBo3gbotdgvyv0Ooaqj0GqeG2YVplf-2yGTmuKBE-YmuMLRXDUIXqFyC54ce5sUPTD4w/s482/travel+liesure+since+3+23+2020.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="361" data-original-width="482" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhkphK8G9dVlRP1POr7XSrkFIxTAgpXjMt7N8hDspaoMcTDVj693d39KKTOlgQvQNwk9tqBo3gbotdgvyv0Ooaqj0GqeG2YVplf-2yGTmuKBE-YmuMLRXDUIXqFyC54ce5sUPTD4w/s16000/travel+liesure+since+3+23+2020.png" /></a></div><p style="text-align: justify;">The sustainability of this performance and return rests on a return to a more pre-COVID environment which hinges on the pace of vaccination of the population and/or the dying out of the virus. According to the government, getting to a point where more than 70% of the population is vaccinated should allow a return to normalcy. The below chart shows the timing of various daily vaccination rates vis-à-vis herd immunity thresholds. It is estimated the current vaccination rate in the U.S. is 1.3 million doses per day.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvi4SYXy3fWgIWCQ5tFj1PWHUyG82YJD_n5qSwhFD6mPAszKVIJ18muL70kCQlPiSGpxINqG7zdjA7OTtHnwdObn2oBvGmPt1sYjHE_bmlkMutuV7Y2J5VztzEqMrnjwYCgvuniA/s533/vaccine+trend+line.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="500" data-original-width="533" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvi4SYXy3fWgIWCQ5tFj1PWHUyG82YJD_n5qSwhFD6mPAszKVIJ18muL70kCQlPiSGpxINqG7zdjA7OTtHnwdObn2oBvGmPt1sYjHE_bmlkMutuV7Y2J5VztzEqMrnjwYCgvuniA/s16000/vaccine+trend+line.png" /></a></div><p style="text-align: justify;">In the U.K. Boris Johnson announced the restart of international travel beginning May 17, 2021. Travel agencies have reported a <a href="https://greekcitytimes.com/2021/02/23/boris-johnson-travel-may-17/">surge in bookings</a> as a result of this announcement. A return to a more normal international travel environment will most likely face fits and starts due to some countries quickly reinstating lockdowns though. Today New Zealand's Prime Minister placed Auckland on a seven-day lockdown. Actions like this will keep international travelers cautious about making overseas commitments. Nonetheless, a return to a more normal environment seems to be unfolding and this should benefit travel and leisure related companies.</p>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-49616780902197679512021-02-25T23:47:00.001-05:002021-02-25T23:49:40.347-05:00Value Stocks Outperforming For Now<p style="text-align: justify;">Large cap value stocks have come to life this year after underperforming growth for most of the last 15-years. As the below chart shows, the Invesco Pure Value Index (<a href="https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=Investor&productId=ETF-RPV">RPV</a>) is up nearly 15% this year compared to the Invesco Pure Growth (<a href="https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=Investor&ticker=RPG">RPG</a>) Index return down .12%.</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJLgZ_0Lot59LIgonszYxr_XhQATxQevdUCpe3U6VGDmXbzRjDkT8OardDWjMOU-xe44z7E2mjtPupdeaY6U3-Fy3GxloLlUaPunNlOlZBSqYDzCHprGS_Q_Xtf8p5lWkYAI8rZg/s620/ytd+gr+val+rsp+2+25+2021.png" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="376" data-original-width="620" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJLgZ_0Lot59LIgonszYxr_XhQATxQevdUCpe3U6VGDmXbzRjDkT8OardDWjMOU-xe44z7E2mjtPupdeaY6U3-Fy3GxloLlUaPunNlOlZBSqYDzCHprGS_Q_Xtf8p5lWkYAI8rZg/s16000/ytd+gr+val+rsp+2+25+2021.png" /></a></div><br /><p style="text-align: justify;">Even on a slightly longer term time frame Pure Value is outperforming Pure Growth. The below bar chart shows the Pure Value return of 111% out paces the 89% Pure Growth return since the March 23, 2020 market low.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJQIO_cP5d08jJvqd11bOdKE3dKlmSCxjTdlz197yYvFEyKd0pssInln7iE4M1RYaPnDJ6egGYaczJpQXOFBEowGaUTzqaBzpQNTQbi3k-VoJW9WuUBhrk1vzWJu-XvmNzbUIdxw/s413/index+ytd+2+25+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="317" data-original-width="413" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJQIO_cP5d08jJvqd11bOdKE3dKlmSCxjTdlz197yYvFEyKd0pssInln7iE4M1RYaPnDJ6egGYaczJpQXOFBEowGaUTzqaBzpQNTQbi3k-VoJW9WuUBhrk1vzWJu-XvmNzbUIdxw/s16000/index+ytd+2+25+2021.png" /></a></div><p></p><p style="text-align: justify;">The return of value oriented equities trails the growth oriented stocks by a fairly wide margin since early 2006. In the below chart, Pure Value lags Pure Growth by nearly 200 percentage points, a period of time spanning fifteen years. A narrowing of the performance gap would not be unexpected. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi8Co8QYwVt2JlDqwlgFGgNlKyf3dYPrL9Dc0sXw-xWAPo4wwjQ0uBKTZouoaCutst400Xa2W1SlNsin7PStozHK-I9vd6SCAjrCcVvLwRbfLtwir3xSH4czop4ERVS_L0nIl3BWg/s480/gr+val+cumulative+2+25+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="360" data-original-width="480" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi8Co8QYwVt2JlDqwlgFGgNlKyf3dYPrL9Dc0sXw-xWAPo4wwjQ0uBKTZouoaCutst400Xa2W1SlNsin7PStozHK-I9vd6SCAjrCcVvLwRbfLtwir3xSH4czop4ERVS_L0nIl3BWg/s16000/gr+val+cumulative+2+25+2021.png" /></a></div><div><br /></div><div style="text-align: justify;">The near term outperformance of value noted above might be the beginning of a more sustainable period of outperformance for value type equities. One factor contributing to value's outperformance is the fact the economy is exiting the recession that was triggered by the pandemic shutdown. As I noted in a post several years back, <a href="https://disciplinedinvesting.blogspot.com/2014/03/why-it-matters-that-value-stocks-are.html">Why It Matters That Value Stocks Are Outperforming Growth Stocks</a>, the value asset class tends to do better than growth as the economy exits a recession and resumes its growth. A steepening yield curve is another indicator that suggest the economy's growth is quickening. A steeper curve also helps financial stocks which are a large weighting in the the Pure Value Index. The green line in the below chart represents the yield curve, i.e., the 10-Year Treasury minus the 2-Year Treasury, and clearly the curve's steepening appears to have accelerated. Importantly, the value outperformance and a steeper yield curve can be short lived. In 2016 the below chart shows value stocks were outperforming as the yield curve was steepening. The outperformance lasted all of about one year.</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgXvWqQfw8uIpgNBRc-Zt2TOCCngK03LB_IvvbHhS9ok5o7EjnKmywkjLoei06RZlVbkDkZxyt5KSggX8-BO5mF7xQfr08usCGBUZgV69PMe3Zm1J-HkwrVXvU-1TtwZuFR9xpBbQ/s480/steeper+curve+gr+vs+value.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="360" data-original-width="480" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgXvWqQfw8uIpgNBRc-Zt2TOCCngK03LB_IvvbHhS9ok5o7EjnKmywkjLoei06RZlVbkDkZxyt5KSggX8-BO5mF7xQfr08usCGBUZgV69PMe3Zm1J-HkwrVXvU-1TtwZuFR9xpBbQ/s16000/steeper+curve+gr+vs+value.png" /></a></div><br /><div style="text-align: justify;">Of course things are not always as clear as they might seem. The Fed's involvement in the government and corporate debt market influences the curve's moves and can upend what should be a normal cycle occurrence. Additionally, our view in order for value to outperform for a sustainable period, economic activity needs to continue its improvement. Certainly, 2021 looks like the economy could grow at a fast pace, maybe 6%-7% GDP growth, as pent-up demand is satisfied. However, policy decisions from Washington, DC can create headwinds for economic growth after 2021, and if that plays out, slower economic activity would favor growth type equities as I note in that earlier article link.</div>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-57660792287033615152021-02-22T05:00:00.004-05:002021-02-22T07:13:13.358-05:00Interest Rates Pressuring Bond Returns<p style="text-align: justify;">It is not uncommon for the yield curve to steepen as the economy exits a recession and transitions into expansion mode. After another Fed induced yield curve inversion in August of 2019, the economy dipped into a recession at the end of 2020. Certainly the pandemic shutdown contributed to the recession, but possibly the economy was headed in that direction anyway following the yield curve inversion.</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhyjFansi8MUeokTJ7YaHDpy_W030UxUX23i01fL7HK9A3K5ScyEGVvkQgHiIJwBiAyBULkjhb0-VoLGpU-0SM4OoGpCqO8qWpnu8qdsYyNuiLasfnpan00YJwhFcLd8oihho5CeA/s506/fed+funds+and+yield+curve+2+2021.png" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="506" data-original-width="479" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhyjFansi8MUeokTJ7YaHDpy_W030UxUX23i01fL7HK9A3K5ScyEGVvkQgHiIJwBiAyBULkjhb0-VoLGpU-0SM4OoGpCqO8qWpnu8qdsYyNuiLasfnpan00YJwhFcLd8oihho5CeA/s16000/fed+funds+and+yield+curve+2+2021.png" /></a></div><p style="text-align: justify;">With the yield curve spread at 123 basis points (10y Treasury minus 2y Treasury) and rising, this move higher in interest rates is a headwind for bond returns. The below chart highlights the return of a few bond ETFs since 9/30/2020 along with the return of the S&P 500 Index. With the yield curve steepening, and a faster rise in the long end of the yield curve, the longer maturity ETFs are generating the weakest returns.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjVHdsBrYJGfCEsUCakqI1py54c4pNuF3YalWlveliFVgR7qPLTtZGQbCaMYcPOAtkfe9mrGW04L0J8jzFI0nUGNTYLMJDZx4Wu9rdPhPTqTDBmmiFyosd-iFDQFNoZ8Ep8s7JYCA/s488/bond+etf+chart.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="366" data-original-width="488" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjVHdsBrYJGfCEsUCakqI1py54c4pNuF3YalWlveliFVgR7qPLTtZGQbCaMYcPOAtkfe9mrGW04L0J8jzFI0nUGNTYLMJDZx4Wu9rdPhPTqTDBmmiFyosd-iFDQFNoZ8Ep8s7JYCA/s16000/bond+etf+chart.png" /></a></div><p style="text-align: justify;">The below table contains a broader range of fixed income investments and clearly, the increase in interest rates his having a broad negative return impact on investor bond returns. The weakest return is the PIMCO zero coupon bond ETF (<a href="https://www.finviz.com/quote.ashx?t=zroz">ZROZ</a>). Although interest rates/yields are low, those investments without any yield support are faring the worst as interest rates move higher.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEipAhn0S8tXMZwg2isd3ohTLohX-yrd1tB28D6aU5zfkOu3KAvak0UTVqwR2f9-JlcpnBzkTY3Ind9yt1VYsCVm85lapaBVXkTYeOZ8RVz-xdlL8dC9R6adgY970rIGOE1hTy4jfQ/s621/fixed+2+19+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="328" data-original-width="621" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEipAhn0S8tXMZwg2isd3ohTLohX-yrd1tB28D6aU5zfkOu3KAvak0UTVqwR2f9-JlcpnBzkTY3Ind9yt1VYsCVm85lapaBVXkTYeOZ8RVz-xdlL8dC9R6adgY970rIGOE1hTy4jfQ/s16000/fixed+2+19+2021.png" /></a></div><p style="text-align: justify;">If the economy begins to expand more rapidly as pent up demand gets satisfied, interest rates could continue to move higher. A chart making the rounds on social media over the weekend was one comparing commodities, specifically the gold to copper ratio, to the 10-year US Treasury yield. Below is a chart of a commodity index (<a href="https://www.finviz.com/quote.ashx?t=dbc&ty=c&ta=1&p=d">DBC</a>) that leads to a similar conclusion.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEheFNl9rBMmByfc5DxWCk97hrU0AMBSi_XIyabJr8f0KS1QMVaVp-D_Zex2m8NXvx-rq1Jawk-VEiKnj2-hLEz7Qyss_EBs8tUR3Oe2KginYFxtMxV3jYFD7aDVU3fYBukD__ACTg/s487/commodities+lead+rates+2+19+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="365" data-original-width="487" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEheFNl9rBMmByfc5DxWCk97hrU0AMBSi_XIyabJr8f0KS1QMVaVp-D_Zex2m8NXvx-rq1Jawk-VEiKnj2-hLEz7Qyss_EBs8tUR3Oe2KginYFxtMxV3jYFD7aDVU3fYBukD__ACTg/s16000/commodities+lead+rates+2+19+2021.png" /></a></div><p style="text-align: justify;">Since commodity prices have a tendency to lead interest rates, longer maturity interest rates could continue their move higher. At the beginning of 2020, the 10-year Treasury was near a 2% yield so that level is attainable. The current yield of 1.34% is near resistance as this is the level rates reached in the summer of 2016. Broadly though, it does seem the low in interest rates is behind for at least the near term.</p>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-35274783036015585282021-02-21T13:58:00.000-05:002021-02-21T13:58:16.966-05:00High CEO Confidence Not Reflected In Consumer Confidence<p style="text-align: justify;">Last week the Conference Board reported the <a href="https://www.conference-board.org/research/CEO-Confidence">Measure of CEO Confidence</a> for the first quarter of 2021 at 73, a 17-year high for the reading. A as the Board notes, readings above 50 reflect there were more positive than negative responses. The survey was conducted January 14 through January 29. As reflected by the consumer though, the Conference Board's reading shows consumer confidence at 89.3 and far below the 135 reading prior to the pandemic induced recession. The consumer reading is anticipated to be updated in the coming week. Of significance is the fact other consumer confidence and sentiment readings, like University of Michigan's, also show lower levels of consumer confidence.</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi1uDu98m43ail9y_9EqBdRtFqBLxdSrB6EKDxfrXnCV7kYGMeANcwlrb_9pK7KhyphenhyphenmYl1652S-1XGHJZ3JBYsx90TwbCk15GY_8euXtXBSM8zaySgvVWpx6swCz8jq48SBkMcOWiA/s527/confidence+ceo+2+18+2021.png" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="395" data-original-width="527" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi1uDu98m43ail9y_9EqBdRtFqBLxdSrB6EKDxfrXnCV7kYGMeANcwlrb_9pK7KhyphenhyphenmYl1652S-1XGHJZ3JBYsx90TwbCk15GY_8euXtXBSM8zaySgvVWpx6swCz8jq48SBkMcOWiA/s16000/confidence+ceo+2+18+2021.png" /></a></div><div><br /></div>With respect to the CEO Confidence measure, the Conference Board's report noted:<div><blockquote><ul style="text-align: left;"><li>"67% of CEOs reported economic conditions were better compared to six months ago, down slightly from 70%."</li></ul><ul style="text-align: left;"><li>"However, only 10% said conditions were worse, down from 21%.</li></ul><ul style="text-align: left;"><li>"78% of CEOs anticipated improved conditions in their industry, up from 65%.</li></ul><ul style="text-align: left;"><li>"7% expected conditions to worsen, down from 11%."</li></ul></blockquote><div style="text-align: justify;">CEO confidence is important as it can drive increased hiring. In fact the survey did highlight that 47% of CEOs expect to expand their workforce over the next 12-months versus 33% in the September survey.</div></div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">Seeing an improvement in consumer confidence is important as the consumer represents 70% of economic activity. Last week's unexpected increase in initial jobless claims to 861,000 (765,000 expected) is a trend that needs to be reversed.</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkU__HyI8SW-QjEDwH4uX_Zslp80_z3qsd0WpdBNqdSBovQne01b-pit9WaAKD2N6MEFjPaRkw6-er00Pm5VI7-E1Iq0f60pH21qkxxjyGR1cgUC1v5N4XweiyiVWQ7tApxuKzjw/s529/jobless+claims+2+18+2021.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="397" data-original-width="529" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkU__HyI8SW-QjEDwH4uX_Zslp80_z3qsd0WpdBNqdSBovQne01b-pit9WaAKD2N6MEFjPaRkw6-er00Pm5VI7-E1Iq0f60pH21qkxxjyGR1cgUC1v5N4XweiyiVWQ7tApxuKzjw/s16000/jobless+claims+2+18+2021.png" /></a></div><div><br /></div><div style="text-align: justify;">Pent-up demand and falling virus cases will likely drive positive economic activity near term; however, broader improvement in the employment market is needed to see sustained economic growth into 2022.</div>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-43461540421343985272021-02-09T18:34:00.003-05:002021-02-09T18:35:23.026-05:00Continued Deterioration In Small Business Optimism<p>Today's <a href="https://www.nfib.com/content/press-release/economy/small-business-optimism-drops-further-below-historical-index-average-in-january/">Small Business Optimism Report</a> by the National Federation of Independent Business (NFIB) shows continued deterioration in business owners optimism in January. The Index fell .9 points to 95.0 versus December's reading and taking it below the 47-year average of 98. The quarter over quarter absolute change is a minus 9 points and is the largest change since the -13.4 and -10.1 point change in April and May of 2020.</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjIlRpiNtelmyRQBVsd98IOaXnVhIy-GYDR6KZjlu044mIpAxXia3tMTsBlTYaxbW05X91jTzFB46M2f-Wg7jgxEQxvN_fVY3glM-DXDOm1uFXIiJXFX4X_QDlb_F52RkZfh7Daag/s480/nfib+1q+change+economy.png" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="361" data-original-width="480" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjIlRpiNtelmyRQBVsd98IOaXnVhIy-GYDR6KZjlu044mIpAxXia3tMTsBlTYaxbW05X91jTzFB46M2f-Wg7jgxEQxvN_fVY3glM-DXDOm1uFXIiJXFX4X_QDlb_F52RkZfh7Daag/s16000/nfib+1q+change+economy.png" /></a></div><div><br /></div><div style="text-align: justify;">Also worth noting from the survey is business owners are expecting a worse economy six months from now. This point of view can lead to reduced hiring and investment if this perception becomes a reality.</div><div style="text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgesOzuytKPVsbgmktxYYL73bgr4A-nsaojRbDBX3RTeTHnFg_GmuPrJVMl0syLdhfCLpAFZMi9RITGlXc_ffnwLb5oYiBIDu9uq-vlaipoEyvwEOefZyB4IuGu21G_r46hyKMJ0A/s588/nfib+and+economy.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="588" data-original-width="478" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgesOzuytKPVsbgmktxYYL73bgr4A-nsaojRbDBX3RTeTHnFg_GmuPrJVMl0syLdhfCLpAFZMi9RITGlXc_ffnwLb5oYiBIDu9uq-vlaipoEyvwEOefZyB4IuGu21G_r46hyKMJ0A/s16000/nfib+and+economy.png" /></a></div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">Below is a table of the 10 components that make up the index and only two improved in January versus December, current job openings and expected credit conditions. It is evident independent business owners optimism is deteriorating and this can have a negative impact on upcoming economic growth.</div><div style="text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjKIf6utmFp_c5eMY39jQl34NSA0pktyNWQWvocfCI8PiFjOoIBX6VRP_jl7av9IOnpB8ET7h3eEhXJBcIgQ0Jve6zpiLWm77o2ZhruB0flA8_AwKm9jDNh8i9caqWujB5xKiQSFQ/s540/optimism-chart-jan+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="371" data-original-width="540" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjKIf6utmFp_c5eMY39jQl34NSA0pktyNWQWvocfCI8PiFjOoIBX6VRP_jl7av9IOnpB8ET7h3eEhXJBcIgQ0Jve6zpiLWm77o2ZhruB0flA8_AwKm9jDNh8i9caqWujB5xKiQSFQ/s16000/optimism-chart-jan+2021.png" /></a></div><div style="text-align: justify;"><br /></div>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-41743210337794168862021-02-07T15:44:00.003-05:002021-02-07T15:44:25.672-05:00A Weaker Jobs Recovery Seems To Be Unfolding<p style="text-align: justify;">In a post I wrote in late January I noted the headwind that an <a href="https://disciplinedinvesting.blogspot.com/2021/01/foundation-for-slower-economic-growth.html">increased regulatory and tax burden</a> is likely to have on economic growth. Last week's jobs reports provided further evidence that a slower economic environment may be taking hold. As the below chart shows, the level of employment seems to be trending sideways and is approaching the trajectory of the slow job recovery following the financial crisis in 2008/2009.</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgih7hoqthCItuEvk9oFXfs4osPFwjJtsbmjFwlXWQaddMTRytzgLePn3gBKC6CyUWjdBEXa8cPkcfKO8OXOecsmEkbL4jalur3qCPHw9UuAah36nUkjG4dmEBKyNI95opUFzzpkA/s476/unemployment+reco+very+2+7+2021.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="361" data-original-width="476" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgih7hoqthCItuEvk9oFXfs4osPFwjJtsbmjFwlXWQaddMTRytzgLePn3gBKC6CyUWjdBEXa8cPkcfKO8OXOecsmEkbL4jalur3qCPHw9UuAah36nUkjG4dmEBKyNI95opUFzzpkA/s16000/unemployment+reco+very+2+7+2021.png" /></a></div><p style="text-align: justify;">In order to recover jobs to the pre-pandemic level, the economy will need to add 10 million more individuals to payrolls and after last week's employment reports, this looks like it could be a slow process.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgdTCdYy2wHg-6olZzJ5F2rahVd8T-NqwDphGtROpieavkKmkhZaNSGEcQRIGhLYNZelnnn6TiAiRDEO9pn8f43UYQ-PczRJgEQdpcPtSwuj8FS4l7FVq_ZNyLomkH7kS7hW3I9vA/s474/non+farm+payrolls+Jan+2021.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="359" data-original-width="474" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgdTCdYy2wHg-6olZzJ5F2rahVd8T-NqwDphGtROpieavkKmkhZaNSGEcQRIGhLYNZelnnn6TiAiRDEO9pn8f43UYQ-PczRJgEQdpcPtSwuj8FS4l7FVq_ZNyLomkH7kS7hW3I9vA/s16000/non+farm+payrolls+Jan+2021.png" /></a></div><p style="text-align: justify;">In the near term though, if the elevated personal savings rate is any indication, a burst of demand could unfold to satisfy pent up demand resulting from the pandemic lockdowns. However, the heightened regulatory burden provides the potential for a slow recovery after 2021.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiY_TD1Bt31guujslk1duudIhuhQAA8-dzaDOUDrFxh1rxwIFeDlRMX8X_RHQml0FuJ1EDjpTEcAXaOiHpKC-PyT2ok7_eYwIbP6VGphOq0_P3HQBU6gE0iuCP14q4XrqMb7nqAbg/s480/personal+savings+dec+2020.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="359" data-original-width="480" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiY_TD1Bt31guujslk1duudIhuhQAA8-dzaDOUDrFxh1rxwIFeDlRMX8X_RHQml0FuJ1EDjpTEcAXaOiHpKC-PyT2ok7_eYwIbP6VGphOq0_P3HQBU6gE0iuCP14q4XrqMb7nqAbg/s16000/personal+savings+dec+2020.png" /></a></div><p><br /></p>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-58489396210782949802021-02-01T05:00:00.016-05:002021-02-01T05:00:06.806-05:00Most Shorted Stocks Power Higher<p style="text-align: justify;">At the end of November last year I highlighted the fact the most shorted <a href="https://disciplinedinvesting.blogspot.com/2020/11/shorts-getting-squeezed.html">stocks had started to gain momentum</a> at the beginning of October. Fast forward to the start of February and<a href="https://markets.ft.com/data/indices/tearsheet/summary?s=TRXUSPMSHRT:REU"> Refinitiv's U.S. Most Shorted Stock Index</a> has continued to generate outsized gains. For the last four months the Refinitiv U.S. Most Shorted Index is up 92.8% versus 10.4% for the S&P 500 Index. Half of this gain has occurred in January with the Shorted Index up 40% as seen in the second chart below.</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEguk_VoVqoYTqkCFlhdPbNykizoqhSGD4-KlFXeZHS_WZCAW4XLuzww36QWfKW2HN6K3raXooHC1mFKGWPxdz8fL4wm_otc8471AbPbViubZqsWzVc1CHiFf2RDvX5KrtATPWYPMw/s474/shorts+squeezed+since+9+30+2020.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="355" data-original-width="474" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEguk_VoVqoYTqkCFlhdPbNykizoqhSGD4-KlFXeZHS_WZCAW4XLuzww36QWfKW2HN6K3raXooHC1mFKGWPxdz8fL4wm_otc8471AbPbViubZqsWzVc1CHiFf2RDvX5KrtATPWYPMw/s16000/shorts+squeezed+since+9+30+2020.png" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhBKoFEnkYbzp_wmnu5G_8nePt39I-bX3uC_39ahqLJdOYvxvleDq8GKICRYBd5sujBky3_dVEtkfijAJBDtmhlzuDi2yxK_eHhOVlaSgMLLoC9ISWLEcl9_O6h1endOfmwIKTtSw/s474/shorts+squeezed+1+31+2021.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="355" data-original-width="474" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhBKoFEnkYbzp_wmnu5G_8nePt39I-bX3uC_39ahqLJdOYvxvleDq8GKICRYBd5sujBky3_dVEtkfijAJBDtmhlzuDi2yxK_eHhOVlaSgMLLoC9ISWLEcl9_O6h1endOfmwIKTtSw/s16000/shorts+squeezed+1+31+2021.png" /></a></div><div><br /></div><div style="text-align: justify;">As noted in yesterday's post, <a href="https://disciplinedinvesting.blogspot.com/2021/01/retail-traders-inflict-pain-on-some.html">Retail Traders Inflict Pain On Some Hedge Funds</a>, some of the recent gains may be due to the increased attention being given to shorted stocks of prominent hedge funds. Nonetheless, this attention is resulting in more research firms providing lists of <a href="https://photos.google.com/share/AF1QipN5bd8YUlJxUk3FKCBiEqvCdeKqEJ4OEERbqXjS2ej4-G2TU3gDOwq-CqLR0qV8Ig/photo/AF1QipOWwFTccmdv8AK9Yc7HPgDok7RoHxqGMskJjt1v?key=QVdSVUI3QzZsXzA3d2lLODZCMS05bGtLZHVBRWlB">short selling targets</a>, but chasing individual names in this strategy can lead to disappointing returns for investors.</div>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-77568620816962505232021-01-31T17:27:00.005-05:002021-01-31T22:30:18.941-05:00Retail Traders Inflict Pain On Some Hedge Funds<p style="text-align: justify;">Last week investors were reintroduced to the terminology of 'short squeeze' and 'gamma squeeze'. It has been some time since the phrase gamma squeeze was bantered about as much as it was last week as the volatility in a few stocks captured headlines. Stocks like GameStop (<a href="https://www.finviz.com/quote.ashx?t=GME">GME</a>) and the movie chain AMC Holdings (<a href="https://www.finviz.com/quote.ashx?t=AMC">AMC</a>) saw their stock prices swing widely, but mostly to the upside. So what is going on with a few stocks like this.<span></span></p><a name='more'></a><p></p><span><a name="more"></a></span><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEisM3RIU2Y8OFfeskUbnfUgcUR7gYoaWdijllFc2uCgg1T_i3vuWkxU6EYyeDBf5kXIu0LTRwkXYBxvTABG62pDDPe5iDLSqQHnDaVYQTodsJh1nhOpHI8o5NyCILlJJAMWU4OdQQ/s520/gme+1+31+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="429" data-original-width="520" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEisM3RIU2Y8OFfeskUbnfUgcUR7gYoaWdijllFc2uCgg1T_i3vuWkxU6EYyeDBf5kXIu0LTRwkXYBxvTABG62pDDPe5iDLSqQHnDaVYQTodsJh1nhOpHI8o5NyCILlJJAMWU4OdQQ/s16000/gme+1+31+2021.png" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><br /><div style="text-align: justify;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOEx85b_cs47QxG0RKIwa7QB9cttrflhBxbDc-dETiU3tloFPsNeQTU8Ng7Uba0SaRsmMpM1Ml_kfVdc7YGhWEDfLx_J3VFUA0zcVUKe56tt6sySZq1tJDGJdJPkvJyEqgiNpq5g/s520/amc+1+31+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="429" data-original-width="520" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOEx85b_cs47QxG0RKIwa7QB9cttrflhBxbDc-dETiU3tloFPsNeQTU8Ng7Uba0SaRsmMpM1Ml_kfVdc7YGhWEDfLx_J3VFUA0zcVUKe56tt6sySZq1tJDGJdJPkvJyEqgiNpq5g/s16000/amc+1+31+2021.png" /></a></div><br />Let me first note the type of trading activity occurring in these stocks is akin to gambling, it is highly risky and the odds are stacked against investors that are getting involved at this point in time. What took place last week were participants in an online Reddit forum, <a href="https://www.reddit.com/r/wallstreetbets/">WallStreetBets</a> (WSB), promoted purchasing the same stocks, GME and AMC to highlight a couple of the stocks. The forum members focused on these holdings, and I am going to focus on GME, as they uncovered the fact hedge funds had heavily shorted GME in anticipation that the stock price would fall. In particular, Melvin Capital had a large GME short position. Sunday's Wall Street Journal highlighted the impact to Melvin Capital in an article titled, <a href="https://www.wsj.com/articles/melvin-capital-lost-53-in-january-hurt-by-gamestop-and-other-bets-11612103117">Melvin Capital Lost 53% in January, Hurt by GameStop and Other Bets</a> ($$).</div><div style="text-align: justify;"><br /></div><div><div style="text-align: justify;">When an investor shorts a stock they sell it at its current market price with the intent of buying the stock back at a lower price. In other words it is a bet that the stock is going down. To sell the shares short, one needs to borrow them from an investor that holds the shares. Addionally, the percentage shorted in GME was greater than 100% of the stock's float. When the short transaction is reversed, the short seller buys back the shares, returns them to the lending shareholder or institution along with a fee representing the cost to borrow the shares.</div><p></p><p style="text-align: justify;">What was also occurring were investors, many driven by the discussions on WSB's forum, began purchasing the stock. Additionally, WSB investors and others bought call options on the stock, lets say out of the money (OTM) calls. An OTM call option means the strike price was higher than the underlying stock's price. If one owns a call option, it gives the owner of the call the right to purchase the stock at a certain exercise price.</p><p style="text-align: justify;">Often, it is a market maker who sells the call option to the call buyer. The goal of the market market is simply to make a fee on selling the call option to the buyer. The market maker purchases GME stock in an amount necessary to eliminate or hedge his risk of being short the option. This is where the terminology gets technical or Greek. The amount of stock the market maker purchases is based on the 'delta' of the option contract when delta hedging. If the delta is .5, it means for every $1 increase in the stock price, the option increases by $.50. The higher the delta the more shares the market maker must hold to hedge his short option position. As the price of the stock gets closer to the option's exercise price, the delta increases, say to .75. In this case the market maker purchases more of the underlying stock referenced by the option, GME in this case. The rate of change of the delta value is referred to as gamma. As investors (WSB participants) buy more GME, the stock price increases, the option delta increases and if the stock price is moving up quickly the gamma increases, thus forcing the market maker to purchase more stock which places additional upside pressure on GME resulting in what is referred to as a gamma squeeze, i.e., a delta that is increasing at an increasing rate.</p><p style="text-align: justify;">The hedge fund that is short the stock might be forced to buyback the shares, GME, as the price rises due to margin calls. Alternatively or simultaneously, the hedge fund can sell stock that it holds long. Last week, the selling of stock that was held long appeared to be occurring in the stock of some companies. But, if the hedge fund is buying back the stock, GME, this places upward pressure on the stock price as well; hence, a short squeeze. </p><p style="text-align: justify;">At the moment this activity seems concentrated in a small number of stocks. One fact that tends to ultimately occur is the fundamentals of a stock ultimately get reflected in a stock's price. With respect to GME, the company has not generated positive earnings per share in any of the last three years, assuming the year ending 1/31/2021 ends in a loss as well. Continued individual stock volatility is likely in the weeks ahead though. <a href="https://www.reuters.com/article/idUSKBN2A00RX">Reuters highlights</a> a Goldman Sachs (<a href="https://www.finviz.com/quote.ashx?t=GS">GS</a>) comment noting, "According to Goldman Sachs Prime Services, this week [week of 1/25/2021] represented the largest active hedge fund de-grossing since February 2009. Funds in their coverage sold long positions and covered shorts in every sector. Despite this active deleveraging, hedge fund net and gross exposures on a mark-to-market basis both remain close to the highest levels on record, indicating ongoing risk of positioning-driven sell-offs."
</p></div>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-75512126888871037262021-01-30T13:27:00.000-05:002021-01-30T13:27:11.027-05:00Dividend Aristocrat Changes For 2021<p style="text-align: justify;">S&P Dow Jones Indices announced the <a href="https://www.spglobal.com/spdji/en/documents/indexnews/announcements/20210122-1301362/1301362_spdaudp2021rebalanceannouncement.pdf?force_download=true">results of its annual rebalancing</a> of the <a href="https://www.spglobal.com/spdji/en/idsenhancedfactsheet/file.pdf?calcFrequency=M&force_download=true&hostIdentifier=48190c8c-42c4-46af-8d1a-0cd5db894797&indexId=5458465">S&P 500 Dividend Index</a>. Three companies are being added in this rebalancing and three are being removed, leaving the number of Dividend Aristocrats at 65. The changes go into effect prior to the market open on February 1, 2021. As noted by S&P, "S&P 500<sup>®</sup> Dividend Aristocrats<sup>®</sup> measure the performance of S&P 500<sup>®</sup> companies that have increased dividends every year for the last 25 consecutive years. The Index treats each constituent as a distinct investment opportunity without regard to its size by equally weighting each company." In addition to the dividend increase requirement, other factors S&P Dow Jones Indices includes in the methodology to select the dividend aristocrats are:</p><span><a name='more'></a></span><ul style="text-align: left;"><li style="text-align: justify;">a constituent must be a member of the S&P 500 Index.</li></ul><div><ul style="text-align: left;"><li style="text-align: justify;">a constituent must have a float-adjusted market cap of at least $5 million for the three months prior to the rebalancing date.</li></ul></div><div><ul style="text-align: left;"><li style="text-align: justify;">a constituent must have an average daily value traded of at least $5 million for the three months prior to the rebalancing date.</li></ul><ul style="text-align: left;"><li style="text-align: justify;">at each rebalancing, the minimum number of constituents should be 40 and the rebalancing should not result in constituents in a particular GICS sector accounting for more than 30% of the index weight.</li></ul></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPcBy-o3cc2N5I4UQ_j-ZaQ7PU02Ws5LXUreXrJZfaO-AtLFa9RSQ88J_81LByX5sVl9uvdMndMelXq_Z-FDUkypjHrFPG0puLPv1PCyiB7zhwMNQJ3-Huc2w47jOhbpGct2t6eQ/s509/2021+div+arit+changes.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="262" data-original-width="509" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPcBy-o3cc2N5I4UQ_j-ZaQ7PU02Ws5LXUreXrJZfaO-AtLFa9RSQ88J_81LByX5sVl9uvdMndMelXq_Z-FDUkypjHrFPG0puLPv1PCyiB7zhwMNQJ3-Huc2w47jOhbpGct2t6eQ/s16000/2021+div+arit+changes.png" /></a></div><div style="text-align: center;"><i><a href="https://docs.google.com/spreadsheets/d/14WPtqcx8OZdrc_1-E_A2Cxo2T4ut7wA4Z6XM-zgZG2c/edit?usp=sharing">Data File (.xls</a></i>)</div><div><br /></div><div style="text-align: justify;">Given the methodology followed to create the Aristocrats'' index, sector weightings are far different than the weighting of the broader S&P 500 Index itself. For example, at the January market close Friday, the two largest sector weightings are Industrials, 23.9% and Consumer Staples, 19.1%. The two smallest sectors are Communication Services, 1.5% and Technology, 1.6%. For investors then, it is important to understand these differences and incorporate this information into one's portfolio goals and objectives.</div>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-41496102249841993132021-01-23T15:11:00.007-05:002021-01-23T18:50:22.310-05:00Foundation For Slower Economic Growth Being Laid, Stocks Still Work<p style="text-align: justify;">In our <a href="http://www.horancapitaladvisors.com/Portals/horancapitaladvisors/Documents/Commentary/Investor%20Letter%20Winter%202020%20final.pdf">Winter 2020 Investor Letter</a> released earlier this month, our firm indicated our real GDP growth expectation for this year is in the mid single digit percentage range. We continue to hold that view given likely pent-up demand and our expectation the economy is exciting the recession. The uncertainty around the virus spread and vaccination progress is a headwind to our growth expectation though. Additionally, before the inauguration of President Biden on January 20, I highlighted the potential <a href="https://disciplinedinvesting.blogspot.com/2021/01/a-policy-error-could-trip-up-stocks.html">risk of a policy error</a> to the economic recovery. Some of the executive orders (EO) signed by the President after he was sworn into office on January 20 now heighten this risk in my view. For investors it is important to separate their political/policy concerns with the view of the performance of the investment markets.</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjD61iV68Ug6IQhXFTYxZLWIbiUrSu10bM5gg_hWcayzIkZ7WZgmeDkpx6JEcKBXbwDI_zsyqApPwOppzOotbEjxtltXtULuXqJoyP0ZrvO1NpIherFpU1DtxHSAlnULF6j1xjukg/s482/market+and+president+1+2021.png" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="362" data-original-width="482" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjD61iV68Ug6IQhXFTYxZLWIbiUrSu10bM5gg_hWcayzIkZ7WZgmeDkpx6JEcKBXbwDI_zsyqApPwOppzOotbEjxtltXtULuXqJoyP0ZrvO1NpIherFpU1DtxHSAlnULF6j1xjukg/s16000/market+and+president+1+2021.png" /></a></div><p style="text-align: justify;"><br /></p><p style="text-align: justify;">To that end the recently signed EO's will have a direct impact on some economic activity. For example, revoking the Keystone pipeline permit will result in some job losses. Keep in mind, some investors view this as a positive and green and alternative energy investments might benefit from this action. One EO signed by the President instructs the government to revise fuel economy standards in California essentially allowing the state to have stricter caps on emissions. The Biden administration is also proposing higher taxes for individuals and businesses. I highlight some of these EO actions and the administration’s tax policy goals as it increases the regulatory and tax burden on businesses and individuals which could create a headwind to economic growth.</p><p style="text-align: justify;">The <a href="https://li.com/">Legatum Institute</a> maintains a <a href="https://prosperity.com/">Prosperity Index</a> for a large number of countries with one component categorized as the Burden of Government Regulation. According to the institute, this index component "captures how much effort and time are required to comply with regulations, including tax regulations." The index goes back to 2007 and below is a chart of the index overlaid with the rolling 10-year annualized U.S. real GDP growth rate. Correlation does not mean causation; however, the higher regulatory burden does seem to equate to slower economic growth as shown on the chart. Coming out of the 2008/2009 recession the GDP rolling average growth rate saw a brief pick up; however, as the regulatory burden increased, GDP growth slowed.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5QE3mSIGPKjzSCio6rbVFPuc7RFZ0tlqeGkNHY27Xqb8ov1JQ5rS79k-mtRresC5ScFzt4_5Skqh65kCqhQ_iMHfJS0uocN7AlwUcSqipJxm2OytO75O3q0GvjjjSEv2BcgUMlQ/s480/reg+and+gdp.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="362" data-original-width="480" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5QE3mSIGPKjzSCio6rbVFPuc7RFZ0tlqeGkNHY27Xqb8ov1JQ5rS79k-mtRresC5ScFzt4_5Skqh65kCqhQ_iMHfJS0uocN7AlwUcSqipJxm2OytO75O3q0GvjjjSEv2BcgUMlQ/s16000/reg+and+gdp.png" /></a></div><p style="text-align: justify;">The report on jobs this past week might be a canary in the coal mine as it relates to how robust the economy grows. Claims were reported at 900,000, a decline of 26,000 versus the prior week; however, they remain up from the low 700,000 level reached in November 2020 as seen below. Then, looking at continuing claims in the second chart below, with the Pandemic category included, continuing unemployment claims are simply too high and this is a drag on economic growth. In short the improvement in claims seems to have stalled and actually trending higher.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiyuZVQwz4-2Q7IXxfN_nyNf0NsI_gh9i0DK18e6NIEYxg9f6haRhvPQnneUunpn96uEIK8JgakLMks1Tb07eZhhVubQayebRMItKqf1rDC-GnoZY2f9916WkfhsJGEx0auNyO6_w/s484/jobless+claims+1+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="361" data-original-width="484" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiyuZVQwz4-2Q7IXxfN_nyNf0NsI_gh9i0DK18e6NIEYxg9f6haRhvPQnneUunpn96uEIK8JgakLMks1Tb07eZhhVubQayebRMItKqf1rDC-GnoZY2f9916WkfhsJGEx0auNyO6_w/s16000/jobless+claims+1+2021.png" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjhudh1RnJk4hoIIBZlPlLNMfucUuV5-DzXNRHVnVAGx6OdVcb3a5iSeGBaFJyekPDH22fUpi_ZYVkBSDrFOmgL27SOWe0kf9byMR4MhJADmYS1EG45IrQvOU4ltTxP5LB-kzDrdQ/s482/claims+1+2021.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="362" data-original-width="482" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjhudh1RnJk4hoIIBZlPlLNMfucUuV5-DzXNRHVnVAGx6OdVcb3a5iSeGBaFJyekPDH22fUpi_ZYVkBSDrFOmgL27SOWe0kf9byMR4MhJADmYS1EG45IrQvOU4ltTxP5LB-kzDrdQ/s16000/claims+1+2021.png" /></a></div><p style="text-align: justify;">Finally, <a href="https://cornerstonemacro.com/">Cornerstone Macro's</a> Daily Consumer Confidence Index has fallen back to the June 2020 recession level. Consumers account for about 70% of GDP and weakening confidence will likely add to the economic growth headwind. One should not discount the positive impact that stimulus by the Federal Reserve and U.S. government can have on the economy and equity prices though, and more stimulus is likely on its way which should bolster confidence in the short term.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi65KDDUFPHXuAFDik_uh3KfDvFNzIsXL7nMmn08h89Sz1uB4UoFbyGT7pMbLwsBmJwrnT8p2jpgYsr0q4fSG0L8-W4w1PBRbGWwFopD8NYeVIkiH9_4BchXm7KBoMoJ8ppCR6bCw/s546/csm+sentiment+daily.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="286" data-original-width="546" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi65KDDUFPHXuAFDik_uh3KfDvFNzIsXL7nMmn08h89Sz1uB4UoFbyGT7pMbLwsBmJwrnT8p2jpgYsr0q4fSG0L8-W4w1PBRbGWwFopD8NYeVIkiH9_4BchXm7KBoMoJ8ppCR6bCw/s16000/csm+sentiment+daily.png" /></a></div><div><br /></div><div style="text-align: justify;">In summary, positive economic growth is expected in the year ahead especially if some of the larger state economies reopen, like California and New York, as vaccination levels increase. Overheated growth will likely not occur if the regulatory and tax burden increases which might keep downward pressure on inflation. But just as the economy experienced slower growth under President Obama, the stock market performance was favorable to investors. A similar environment may be in the offing in the few years ahead.</div>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0tag:blogger.com,1999:blog-36722043.post-57326208142160337412021-01-20T20:32:00.001-05:002021-01-21T06:25:10.411-05:00Maybe Time To Include Dividend Growth Equities To One's Portfolio<p style="text-align: justify;">The <a href="https://disciplinedinvesting.blogspot.com/2021/01/broadening-participation-in-equity.html">broadening in performance</a> across multiple equity asset classes is providing investors with investment opportunities outside of the S&P 500 Index. The S&P 500 Index has certainly been a stalwart in terms of performance over the last five and ten years. Given the strength in the equity market and the index trading at valuation levels that some call stretched, investors might consider dividend paying stocks for a portion of their portfolio. One characteristic of dividend payers is they generally hold up better in down equity markets.</p><span><a name='more'></a></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiux4goHtQUd2MaHxc_Pzfyh4HzrN2p2J7hJ-02x4NF8oEJf1ERKlfPtVWx3Pc5beUVDrYzDnOr6SD4Pt6ddsaMJmDG6rMdpeEc0OYTfMYXdsbhhifS3FAytECbkKJ9uHmoAa8MVw/s492/5+year+cum+dividend+etfs.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><br /><img border="0" data-original-height="367" data-original-width="492" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiux4goHtQUd2MaHxc_Pzfyh4HzrN2p2J7hJ-02x4NF8oEJf1ERKlfPtVWx3Pc5beUVDrYzDnOr6SD4Pt6ddsaMJmDG6rMdpeEc0OYTfMYXdsbhhifS3FAytECbkKJ9uHmoAa8MVw/s16000/5+year+cum+dividend+etfs.png" /></a></div><p style="text-align: justify;">This lower downside volatility for the dividend payers did not hold true during the pandemic swoon in February and March last year. This makes some sense as the broad economy was shuttered and even high quality companies were negatively impacted due to significantly reduced business. As the economy has slowly reopened though, the dividend payers are now resuming leadership. As the below chart shows, the S&P 500 Index is trailing the return of three other dividend focused indexes.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiXRWKjX3DpqR236UgOJlo1tIPM0z9PFFL01Vh_bKR183mhQfb9A0wq7Wxnj87r2FZ7SDEkxmdEUV9hOyqwdGv2sGPXypWr85LhJ6Yrumq4DSgYUa7jQGSCfLmH574W7w15u4LSVA/s495/div+strategies+since+august.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="372" data-original-width="495" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiXRWKjX3DpqR236UgOJlo1tIPM0z9PFFL01Vh_bKR183mhQfb9A0wq7Wxnj87r2FZ7SDEkxmdEUV9hOyqwdGv2sGPXypWr85LhJ6Yrumq4DSgYUa7jQGSCfLmH574W7w15u4LSVA/s16000/div+strategies+since+august.png" /></a></div><p style="text-align: justify;">The Vanguard Dividend Appreciation Index (<a href="https://investor.vanguard.com/etf/profile/VIG">VIG</a>) is trailing the S&P 500 Index. One aspect of VIG is it tracks the NASDAQ US Broad Dividend Achievers Select Index. One criteria necessary to qualify as a Dividend Achiever stock is not missing a dividend increase in 10 years or more. The same measure for the Dividend Aristocrats (<a href="https://www.proshares.com/funds/nobl.html">NOBL</a>) is a history of increasing the company dividend in 25 years or more. </p><p style="text-align: justify;">As the time period increases for dividend increases, fewer companies qualify as an Aristocrat. So with VIG, the index is comprised of 212 companies and the S&P 500 Dividend Aristocrats Index is comprised of 65 companies. With VIG then, it has a broader diversification; hence, a larger weighting in technology at approximately 19%. The highest technology weighting from the other dividend ETF's shown on the chart is 7%. The S&P 500 technology sector weighting is 27%. With the <a href="https://disciplinedinvesting.blogspot.com/2020/09/mega-cap-stocks-run-into-headwind.html">FANGMA stocks weaker performance</a> since August, the S&P 500 Index and VIG have lagged the dividend payers.</p><p style="text-align: justify;">Lastly, although the Democrats have a narrow hold on both houses of Congress, tax policy is likely to change as President Biden indicated on the campaign trail. <a href="https://www.fa-mag.com/news/will-biden-tax-dividends--it-s-in-the-plan-59861.html">Some of the proposed changes</a> are likely to impact the tax rate paid on capital gains and dividends. These changes may not occur until 2022, but importantly, investors should not let the tax tail wag the dog.</p><p style="text-align: justify;">At the end of the day, investors have attractive investment alternatives versus concentrating one's investments in the FANGMA stocks. Even international equities, including emerging market equities are beginning to outperform their U.S. counterparts. This might be the year asset class diversification benefits investors.</p>David Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.com0