Displaying items by tag: stocks

(New York)

Despite the volatility of the last couple of days, the markets actually got some good economic news today. As usual, the data is not perfect, but directionally, the unemployment numbers suggest the underlying economy is improving. The unemployment rate in August was 8.4%. That marks the first reading under 10% since before the pandemic. The economy added 1.4m jobs overall. The only fly in the ointment is that this is the third straight month that the number of jobs added has been falling, a sign that the recovery could be losing momentum.

FINSUM: The reality is we are not just going to immediately pop back to January 2020’s economy. The fact that well over a million jobs were added in a very tumultuous month is a good indication that the recovery is on track.

(New York)

Picking stocks is about the hardest thing one can do right now. The market has risen so much—and seems to be defying gravity—that it is hard to know where to allocate money. On the one hand, growth stocks look ludicrously priced, while on the other, value has been underperforming for over a decade. With that said, here are some stocks that are still providing a good discount but look likely to rise as the performance of their underlying business improves. The first place to look is at beaten-up financial stocks, such as those in the KBW bank index, which is down 30% for the year despite big gains in the market. However, sentiment is turning positive. According to RBC, “Based upon the valuations and the outlook for the economy in 2021, we believe bank stocks can be purchased with the expectation the group outperforms the general market over the next 12-18 months”. The stocks to look for are Bank of America, Truist, TCF Financial, Western Alliance, BankUnited, and Investors Bancorp.

FINSUM: Banks are always a bet on the economy, and given their heavily maligned share prices and the general trajectory of the recovery, seem a wise bet. The only lingering risk in our minds (other than a weak recovery) is how continued ultra-low rates might hurt their earnings over the long haul.

(San Francisco)

The CME Group has published a piece about the outlook for FAAMG stocks in the context of the underlying economy. The CME notes that the FAAMG stocks now account for 22% of the total S&P 500, so their influence is skewing investors’ view of the underlying economy. The reality is that the S&P 500 minus those five stocks is a much more accurate—and much bleaker—representation of the economy. CME says that as the reality of a slow recovery starts to play out in the market’s consciousness, there is bound to be a correction in FAAMG stocks.

FINSUM: The law of gravity would seem to dictate that a fall in FAAMG is inevitable, but what is the catalyst for such a move? Their earnings are good as is growth momentum.

(Berlin)

US investors are growing increasingly interested in European equities. The reasons are many. Europe has undertaken huge levels of stimulus and its economy seems to be recovering from the pandemic more quickly than the US’. Further, the Stoxx Europe 600 is still down 10% on the year versus a 6% rise in the US, which means continental stocks may have more room for gains. Another interesting aspect to note is that the continent’s mix of equities has changed markedly over the years and is no longer dominated by banks. This means higher trending earnings and less volatility.

FINSUM: So you have an economy that might get out of recession faster than the US and returns that are 16 points behind, all with very accommodating monetary and fiscal policies. Investing in Europe makes sense!

(New York)

The wild market over the last four months has caused a lot of elation and anxiety among investors. It has also caused a rethink of what kind of recovery we may be experiencing. Almost everyone thought we would have a V- or U-shaped recovery, but the way things are shaking out, it looks like we may have a “k-shaped” recovery. What this means is that almost all companies took a big dive at the start of the pandemic. However, after that point the fortunes of certain sectors have diverged markedly, forming a “k” shape to the market recovery. IT, consumer discretionary, and communication services have been the big winners, while energy, financials, utilities, and real estate have suffered.

FINSUM: So the interesting question here is the degree to which the market recovery might end up mirroring the economy’s recovery. So far the patterns make sense.