Displaying items by tag: large cap
Starting with the huge gains of tech shares over the summer, and now the whole index, investors have grown increasingly uneasy with market valuations. By some metrics, markets are as stretched valuation-wise as they have ever been. Take for instance Robert Shiller’s famed CAPE ratio. As it stands now the S&P 500 has a CAPE valuation of 33.4x. That is the highest it has been since 1929 and almost double the long-term average of 17x. ”There are great expectations built into this market … We are in the seventh inning of Federal Reserve-supported equity markets”, says the CIO of CIBC Private Wealth Management.
FINSUM: As scary as the valuations are, they are not entirely irrational given the level of stimulus and the way the economy has held up.
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.
One of the most worrying characteristics of the extremely sharp recovery the market experienced over the summer was the heavy bias towards the highest end of large caps-mega caps. Facebook, Apple, Amazon, Microsoft, and Google led the way while many other stocks continued to fall, or rose much less strongly. However, in the last few weeks that has started to shift, with a resurgence of breadth in the market. Gainers have outpaced losers 2-to-1 over the last two weeks, as investors have started to believe in a strong economic recovery. That means previously underperforming large caps are starting to join small caps in rallying into the growing economic recovery.
FINSUM: This is the perfect time for large cap value. The economic recovery is underway and there are plenty of god value large caps that have room to rise because of unreasonable discounting from COVID.
It may not get much attention right now, but the biggest threat to stock prices is also the same thing that has been supporting them for years. If you really consider what has driven the extraordinary rise in stocks, it is the fact that bond yields have been so outrageously low since the Crisis. This has created the widely-covered “TINA” (there is no alternative) syndrome that has driven investors to pour capital into stocks. Accordingly, many analysts say the biggest risk to stocks is a pickup in inflation, which would likely send bond yields sharply higher.
FINSUM: This is a solid argument theoretically, but calling a rise in inflation has been a very poor bet for over a decade. Why is that different now?
It has been stewing for a while, but antitrust regulation regarding some of the stock market’s largest companies is starting to look like more of a reality. However, it is not in the way one might expect. Trump has long said he wanted to work on anti-trust regulation—with Amazon the frequent target of his ire—but now he is taking steps that actually support big companies and corporate power. The way the administration is going about is through the Justice Department filing many legal arguments in cases where it is not even a party. In this way, it is trying to influence how the courts handle competition cases, and it has generally been pushing patent-holder friendly positions and undercutting lawsuits of other enforcement agencies.
FINSUM: This does not track very well with Trump’s general rhetoric, but it does follow a general Republican economic line. It seems positive for stocks.