September 11, 2020

 

Volatility tends to happen in clusters, and this week extended the wobbliness that emerged last week. Mega-cap tech shares fell on Friday for the sixth time in seven days, while global equities saw the first back-to-back weekly decline since March. Little-to-no progress in Washington for securing another round of stimulus weighed on sentiment. 
 
Now that stocks like Apple and Amazon are coming back down to Earth, the door has swung open for cyclical stocks to absorb some of the capital rotation that’s up for grabs. We were encouraged by the resiliency we saw this week in sectors like Materials and Industrials, which are close to breaking out of a two-year trading range.

 

 

Hello, V-Shaped Recovery (We’ve Been Expecting You)

 

 

They say a picture is worth a thousand words, but we may only need one to describe the current trend in global equities: bullish. 

In March, the stock market re-priced the risk of recession in record time. But the “v-shaped” recovery we have experienced in the months since demonstrates (as it has dozens of times throughout history) that the stock market is more interested in where the economy will end up six, twelve, or even 18 months from now.

In the current environment, stocks are responding to record stimulus, zero-bound interest rates, a nascent economic recovery, and a bearish narrative that never materialized. 

Earlier this year, I described the three types of bear markets in a Forbes piece titled, Stay Agile Investing In The Ides of March. There I wrote: “So far, this is an ‘event-driven’ bear. Historically, these bear markets are shorter, less severe, and take less time to recover than structural or cyclical bear markets.”

Thus far, ‘event-driven’ still seems the best label. Many investors who sold during the market swoon have yet to fully embrace this reality, evidenced by persistent outflows from equity funds. 

 

 

 

Dollar Dominance Gives U.S. Upper Hand Against China

 

 

Reports this week suggested China is ready to sanction any U.S. officials who visit Taiwan, cutting-off business ties and even prohibiting them from visiting mainland China. But the latest threats from China actually expose a gaping weakness. As stated in a Bloomberg article, “[China] can control its own borders, but the greenback rules the world.”  

The U.S. dollar is the world’s currency, with the greenback accounting for just under 40% of all major transactions between global financial institutions in July. China’s currency, the renminbi, accounted for just 2% of transactions over the same period. So while U.S. officials can end-run sanctions quite easily, China’s state-run banks cannot avoid compliance with U.S. sanctions.

The U.S.’s dollar advantage could become even more important if the Trump administration sanctions financial institutions in Hong Kong as authorized by congressional legislation in July, or directly targets Chinese banks.

 

 

Save Like a Pessimist, Invest Like an Optimist

 

 

We should always play a mix of offense and defense in our portfolio, even when it feels counterintuitive. In a time when the world feels increasingly in disarray — due to a host of issues — you can choose to set your financial mind on a simpler, pre-defined course. 
 
Morgan Housel has an easy and effective approach to help with that: Save like the world is ending, invest like the future is brighter than ever.
 

 

 

Where Economic Growth Is — and Isn’t — Right Now

 

 

Goldman Sachs assembled an info-graphic underscoring the widening gap between growth in the digital economy versus persistent slumping in the physical economy (with housing excepted). Some economists have referred to this phenomenon as a “K-shaped” recovery, where workers and businesses in affected industries are trending opposite to those that can rely on technology to generate sales.

 

 

Election Year Market Seasonality 

 

 

Sure, September and October are relatively “weak” months in the stock market. But not that weak. Even in presidential election years, each month averages a positive return over half the time. Post-election, stocks tend to rally as policy uncertainty dissipates.

 

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The value of a great coach cannot be understated. This week’s life hack is something we all know but may often forget: The gateway to a successful life and career almost always starts with a mentor. So, find a coach! And be a coach.

Georgetown University, my alma mater, recently lost one of its legends. Read about the life of and legacy of John Thompson here.

Thompson was no longer the men’s basketball coach when I attended Georgetown. But he was no less revered and remained a part of the campus community. Thompson was the first African American coach to win a national championship, when the Hoyas took home the NCAA trophy in 1984.  

Thompson’s influence transcended basketball, as evidenced by the following tweet from NBA legend, Allen Iverson.

 

 

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This material is not intended to be relied upon as a forecast, research or investment advice. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by Silverlight Asset Management LLC to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Silverlight Asset Management LLC, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.​​