Eq: Large Cap
The market has been doing very well since October 30th, up around 9%. Goldman thinks even bigger gains are coming for the S&P 500. The bank has been encouraged by investors’ response after the election and thinks that the vaccine is really in the driver’s seat. The bank’s research team has significantly upgraded their earnings forecasts for next year and 2022 based on the better-than-expected recovery. According to Barron’s, a few assumptions underpin Goldman’s outlook, “at least one vaccine becoming widely available in the U.S., less drastic changes in policy because Congress is most likely to be divided, and the continued V-shaped economic recovery”. Goldman’s official forecast for the S&P 500 at the end of 2022 is 4,300 and a 20% gain from now through the end of 2021.
FINSUM: The “continued v-shaped recovery” is the most volatile aspect of these assumptions, but they also discounted a potentially positive one—another stimulus package. The forecast seems reasonable.
The stock market is going to enter a new era as Joe Biden—in all likelihood—becomes president. As that happens, investors need to start thinking about how to align their portfolios. While all industries will likely be affected to some extent, there are a handful that might be impacted the most acutely, such as energy, autos, tech, manufacturing, agriculture, banking, pharma and healthcare. In autos, Biden’s push for more efficiency will likely benefit Tesla and GM, both of whom are looking to sell more electric vehicles. Tech looks like a real risk area as the chances for more data/anti-trust regulation look higher, though those could be somewhat mitigated by a red Senate. On the manufacturing front, Biden is expected to use government stimulus to boost domestic manufacturing, In banking, executives are bracing for more regulation, but changes are not expected at a fast pace, so nothing too shocking seems likely in the near-term. Pharma looks vulnerable as Biden is committed to bringing drug prices down; that said even Pharma companies don’t expect that Democratic policies will hurt their margins worse than Trump’s proposals. In insurance and healthcare, the picture is mixed. Insurers would almost certainly be challenged by increasing amounts of government coverage, but hospitals would likely benefit from providing care for millions of newly insured Americans.
FINSUM: Biden and the Democrats’ plans will reverberate through the market in the coming months, though not as much as they might if the Left grabs control of the Senate in January. Generally, we agree with that a divided government would be most beneficial to markets.
The market has been extremely volatile this year and that has put many investors on edge, especially those nearing retirement who need to rely on their portfolios for regular income. Treasury yields have gotten so low that they are not a good source of yield. So where to turn? One option is fixed annuities, also called multi-year guaranteed annuities. In contrast to fixed-index annuities or equity-index annuities, the return on MYGAs is not tied to an index. Such MYGAs are currently offering spreads of as much as 300 bp over Treasuries, representing a strong opportunity for those who need guaranteed income.
FINSUM: Two things to bear in mind when considering these—they are generally quite illiquid as the money is “locked up”, and secondly, they do have default risk but often can have limited losses because of state guaranty associations.
The election couldn’t really be more stressful. Investors are anxious not only on the investment front, but on the personal front as well. With that in mind, here are five stocks that should do well no matter who ends up in the White House: Abbott Laboratories (ABT), Newmont (NEM), SBA Communications (SBAC), Roper Technologies (ROP), and Carlisle (CSL). Two things that seem likely to do well no matter who wins the election are companies which provide COVID tests and gold. COVID testing is an obvious one—there needs to be more COVID tests available, and faster/better quality tests. Abbott Laboratories has a $5 test that gets results in 15 min and are connected to a mobile app. Gold seems equally likely to do well as inflation concerns are rising alongside the weakening Dollar, growing US debt issuance, and slumping oil prices.
FINSUM: We think ETFs covering large sections of companies who will be in COVID testing are a good buy. Gold seems like a smart bet too given the likely growing US debt and weaker Dollar.
Dividends have had a tough year. Because of the pandemic, many companies have had to cut their dividends in the face of losses or declining profitability. Even some who have maintained or raised dividends cannot really afford to do so. Therefore stable, rising dividends with healthy underlying companies are very prized right now. Here are some good names to look at: Whirlpool, Avery Dennison, American Electric Power, and Crown Castle International. All four have recently raised their dividends on the back of robust business. Whirlpool, a major appliance manufacturer seems to be riding the home improvement wave, while Avery Dennison, which makes packaging, is likely benefitting from ecommerce gains. The others (a utility and a cell tower company) have inherently durable businesses.
FINSUM: Cell towers, utilities, and packaging materials seem like very strong areas even if the pandemic gets worse this winter, and there is almost zero rate risk at present.
The yield environment is a terrible one for anyone who is seeking income from their investments, especially those in retirement who may be living on a fixed income. So where can investors seek strong domestic yields? Check out mortgage REITs. Mortgage REITs have long offered some of the highest yields in markets because of the leverage they utilize. Most of the group have yields over 10%. Look at the following names as an example: AGNC Investment Corp. (AGNC, yield 10.2%), Annaly Capital Management, Inc (NLY, 12.9%), Anworth Mortgage Asset Corporation (NH, 14%), and Armour Residential REIT (ARR, 12.3%).
FINSUM: So obviously mortgage REITs have significant interest rate risk, but can you imagine a period where interests rates seem less likely to rise?