(New York)

There has been a big change of opinion for investors over the last two weeks or so. For almost all of this year, a Biden victory, and especially a blue sweep were seen as potential negatives for the economy vis-à-vis a Trump reelection. Any gains in the polls for Democrats was seen as a negative for the economic outlook, particularly because of the chance for higher taxes. However, the rising odds for a blue sweep have managed to assuage an even bigger fear for investors—a contested election that could drag on for months. Accordingly, gains in the polls for Democrats have seen rising markets. Goldman Sachs feels strongly enough to say this: “All else equal, a blue wave would likely prompt us to upgrade our [US economic growth] forecasts”.

FINSUM: We think there are two specific reasons perceptions have changed. Firstly, the decreased chances for a contested election (very arguable if that is actually true); and secondly, the odds for bigger stimulus and infrastructure packages, which would be positive for the economy.

(New York)

The last few weeks have seen good performance out of US indexes. Much of the credit has gone to the idea that investors were awaiting a new stimulus bill at any moment. However, why the market rose is actually less important than how it did so. One of the very worrying things about the market’s recovery in the early summer was how seemingly all of it was led by FAAMG, with extremely limited breadth. That is exactly what made the last several weeks so special—it finally broke that trend. Over the last three months the Invesco S&P 500 Equal Weight ETF (ESP) has outperformed the SPDR S&P 500 ETF (SPY) 13% to 10%. The reason why is that a huge cut of stocks are rising, not just the largest stocks. The last ten days have seen the biggest jump, with advancing stocks outnumbering decliners 2 to 1. That is called a “breadth thrust” and it is very rare and very bullish. It has happened just 29 times since 1990, and 96% of the time the market is higher 12 months later.

FINSUM: This does not mean the market is going to rocketship right away, but in general this has been a very solid indicator of rising markets.

(San Francisco)

Apple has a big moment of truth waiting for it this autumn. The company has seen a recent drop in value after a very strong rise. Part of the reason is uncertainty about the company’s next big phase: 5G. Tomorrow, Apple will unveil its first ever 5G phones. At stake is whether this change will begin another upgrade super cycle, the likes of which have powered the company to the meteoric heights upon which it now sits. Whether or not a super cycle happens seems to come down to whether 5G really creates a transformative experience for phone users. There is a lot of hype around 5G’s superfast speeds and how they will change the nature of smartphones, but as yet little is tangible. One prominent analyst, Dan Ives, from Wedbush, is all-in on Apple, saying “I believe it translates into a once-in-a-decade-type upgrade opportunity for Apple”.

FINSUM: For the last several years (since at least 2015), Apple’s new models have felt a lot less groundbreaking. If this years’ can break the trend, there will be another big sustained jump in the stock.

(New York)

Investors need to keep a very sharp eye on the bond market. The yield curve is steepening without any associated rise in economic activity. The reason why has to do with the election. Biden has been rising in the polls, and investors have been increasingly betting he will emerge victorious as part of a blue sweep. If that happens, it is assumed the US would issue a great deal more debt to fund stimulus packages. This means there would be significantly more Treasury bond supply than at present, and potentially calls into question the credit of the US government. As evidence of this trend, the spread between 5- and 30-year Treasuries just hit its largest since 2016.

FINSUM: This is a potential black swan event that no one has seen coming. The election seemed like it would be a dead heat through election day, but if the needle moves more towards Biden, the whole picture for fixed income will change.

(New York)

Dividend stocks have gotten a whole lot harder to choose this year. It used to be that you could pick a wide selection of stable decent-yielding stocks and hold them for the long haul. However, COVID has disrupted that in many ways, as it has disproportionately weakened some sectors and disrupted many business models. With that in mind, here are three key lessons to remember when choosing dividend stocks in 2020: expect lower payouts, be wary of financing, don’t chase after yields. The first one is simple—many companies have had to cut dividends and many more will. The second is highly related to the first: be wary when companies have to use debt in order to maintain a dividend. In that sense, simply maintaining the dividend is not necessarily a sign of strength. Finally, and most interestingly, is the lesson about not chasing yields. Because yields are so low, dividend stocks are likely to see gains anyway, so it is more important to focus on the sustainability of dividends than chase yields that might collapse.

FINSUM: All of these lessons make a great deal of sense in the current environment. We particularly like the idea that stocks which don’t have the very highest dividends might actually produce the best combined returns.