Tag: Investing

Election 2020: What happens if we don’t know the results for a while?
Investing

Election 2020: What happens if we don’t know the results for a while?

Investors continue to ask me if they should get out of the market to “sit out this election.” I’ve attempted to push back against this impulse by using long-term historical perspectives to remind investors that, as always, it’s time in the market that matters rather than timing the market. In my last blog I represented that investors’ long-term returns would have been meaningfully diminished had they sat out the first 100 days following each of the inaugurations over the past 60-plus years. The response to that blog had many inquiring, not about the first 100 days of a term, but rather about the performance of markets in the weeks leading up to the election. Here are the results. The average and the median returns are positive, modestly better if you exclude the 2008 global financial cris...
Companies turn to convertibles for much-needed cash
Investing

Companies turn to convertibles for much-needed cash

As a relatively small and often overlooked asset class, convertible securities rarely make headlines. However, the asset class has received a great deal of attention from financial publications in recent months. Convertibles have been making the news for two primary reasons – record-setting new issuance and strong absolute and relative performance. COVID-19 spurred a wave of convertible issuance early this year A convertible security is a corporate bond that has the ability to be converted into a fixed number of shares of the issuer’s common stock. New US convertible issuance has been strong this year, currently standing at about $81 billion according to Bank of America. That’s higher than all of 2019, which was in itself a very strong year with about $53 billion.1 This is highest level ...
Election year seasonal effects and low interest rates support stocks
Investing

Election year seasonal effects and low interest rates support stocks

In mid-June, we began cautioning that the high-velocity, v-shaped recovery in stocks from their March lows was producing tactically overbought conditions, raising the likelihood of a near-term pullback.1 Fast-forward to early-September and the S&P 500 Index began what now appears to be an abrupt risk-shedding event, centered on the high-flying growth and technology stocks. Admittedly, our short-term timing indicators, including the put/call ratio, tend to work better near lows than they do around highs in the stock market.2 As such, all we can really do is warn of overbought extremes, and offer a handful of negative catalysts that stocks may be more vulnerable to at the time. Still, a two-and-a-half-month lag is pretty good in our book. Gauging the downside We don’t pretend to know ...
It may not pay to avoid the market in the early days of a new administration
Investing

It may not pay to avoid the market in the early days of a new administration

I was recently giving my usual spiel to clients about the importance of staying the course with their investments throughout the election season and irrespective of who ultimately wins the presidency. To illustrate that, let’s consider how stocks, as measured by the Dow Jones Industrial Average, have performed since Dow was established in 1896. A hypothetical $100 investment in the Dow would have been worth over $68,378 by the end of the second quarter of 2020.1 That gives us a good, large sample size to examine what the results would have been if investments were made only when one political party occupied the White House. In both cases – regardless of whether investments were made only when Democrat or a Republican was in power – the returns over that time frame would have been diminishe...
Tactical Asset Allocation – September 2020
Investing

Tactical Asset Allocation – September 2020

Macro update We believe the global economy is healing, and we expect its upward growth trajectory to continue for the reminder of the year. Based on our macro regime framework, the global business cycle remains solidly in a recovery regime, with growth below trend and expected to improve over the next few months. The recovery is strengthening in its depth and breadth. Our leading economic indicators suggest growth is gaining momentum. Trade activity within Emerging Asia is rebounding strongly, providing further evidence the global manufacturing cycle is normalizing— supported by rebounding orders and demand in the developed world. Global market sentiment continues to improve, as evidenced by broad-based outperformance of risky assets over defensive assets in both equity and fixed income ...
What will arise from today’s ‘creative destruction’?
Investing

What will arise from today’s ‘creative destruction’?

It’s back to school season, and that invariably reminds me of my own education and all that I enjoyed learning when I was in school. One class that I found particularly thought-provoking was a business school class on the history of entrepreneurship. Interestingly, the curriculum started with Joseph Schumpeter, the economist who introduced the concept of “creative destruction,” which Schumpeter developed based on the theories of Karl Marx. Not surprisingly, I have thought a lot about Schumpeter’s views throughout the pandemic. By way of definition, Schumpeter describes creative destruction as the “process of industrial mutation that continuously revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” 1 Simply put, out of pain...
SteelPath September MLP updates and news
Investing

SteelPath September MLP updates and news

August brought relatively stable midstream equity prices despite continued upward momentum in commodity prices. Quarterly earnings season concluded, the first to include the impact of COVID-19 and the resulting impact on global demand for hydrocarbons. Results were, on average, better than Wall Street expected. MLP market overview Midstream MLPs, as measured by the Alerian MLP Index (AMZ), ended August down 1.3% on a price basis but up 0.5% once distributions were considered. The AMZ results underperformed the S&P 500 Index’s 7.2% total return for the month. The best performing midstream subsector for August was the Other Energy subsector (with gasoline distribution businesses driving performance), while the Diversified subsector underperformed, on average. For the year through Augu...
Unpopular but essential – petroleum products improve lives in unappreciated ways
Investing

Unpopular but essential – petroleum products improve lives in unappreciated ways

We encounter petroleum1 products on an almost constant basis – like something as inconspicuous as an iPhone case or as essential as indoor plumbing. Though petroleum is synonymous with automobiles, this represents less than half of petroleum demand. Perhaps surprisingly, an almost equivalent amount of petroleum demand is derived from non-transportation sources. Where else do we encounter petroleum products? How about in milk cartons, golf balls, MRI scanners, lipstick, crayons, and solar panels. Regardless of its ubiquity, petroleum is often vilified for its role in the environment, primarily from use as transportation fuel. Today, transportation accounts for 14% of global greenhouse gas emissions, with approximately two-thirds coming from cars and trucks.2 Agriculture, industrial, and po...
The revolution in how we pay for things continues
Investing

The revolution in how we pay for things continues

Over the past few months, clients have asked me how the current environment has transformed the direction of structural change in the global economy. My reply is always that I don’t see a lasting impact on the direction of structural change, but I do see the crisis accelerating many of the structural changes that I’ve already been long invested in – e-commerce, working from home, telemedicine and digital payments, to name a few. Let me dig into digital payments to illustrate what I mean. Long before the effects of the COVID-19 pandemic, the global payments landscape was experiencing fundamental transformation. Over the past few years, customer expectations and behaviors have been changing, the impact of technology has been tremendous, global demographics have evolved, and the market has b...
Three reasons why this isn’t another ‘tech bubble’
Investing

Three reasons why this isn’t another ‘tech bubble’

It feels like investors have been on a wild ride over the past week as tech stocks plunged, dragging down major global indexes with them. A few factors contributed to the fall: The first was Senator Mitch McConnell’s comments that a US fiscal stimulus deal may not come to fruition in the next few weeks. Then, concerns rose about the potential for a contested election in the US presidential race if no clear winner is declared on election night. Add to that concerns about frothy valuations in the tech space — the result was a very substantial sell-off for tech stocks with reverberations in global markets. Some are suggesting this is the start of another dramatic sell-off, similar to the spring of 2000 when the “tech bubble” burst. I highly doubt that. Yes, this sell-off was significant, and...