Many forces are at work that could result in a correction for U.S. markets: uncertainty around the trajectory of the pandemic; the worrisome prospect of a contested presidential election; and typical seasonal weakness. And yet, as we write, the S&P 500 remains near an all-time high.
Why? The investment backdrop remains positive, in spite of all the fear-generating headlines. As we noted above, the 2020 coronacession is different from other recent recessions, and we believe the recovery from it will be more robust, assuming that the correct policy framework remains in place. We’ll be listening carefully to company management commentary as we gear up for another earnings season.
The political drama is high — not perhaps, as some have said, the highest ever, since we remember the late 60s and early 70s when political radicals were even more violent and disruptive than they are today. In spite of that drama, the polarized factions on Capitol Hill do have a basic, common interest in their own political survival. We think that that will incline them to further fiscal stimulus, before the election or shortly after.
U.S. Markets
We continue to be optimistic about the U.S., especially the tech sectors that we have often mentioned: cybersecurity, the cloud in its various forms, artificial intelligence, big data, virtual communications, e-commerce, business software, and semiconductors. Outside tech, we see reason for a resurgence of cyclical stocks in the industrial area: electric equipment (companies such as Emerson [NYSE: EMR] and heavy machinery (companies such as Caterpillar [NYSE: CAT]). We also see some special situations emerging (such as Disney [NYSE: DIS]).
Global Markets
We are bullish on small caps in Japan. There is a variety of open- and closed-end funds available to U.S. investors.
We are bullish on India, especially the financial sector, e-commerce, and the digital payments industry. India’s Reliance Industries, as well as many global companies (including Microsoft [NASDAQ: MSFT], Facebook [NASDAQ: FB], Amazon [NASDAQ: AMZN], and Walmart [NYSE: WMT]) have invested in Indian e-commerce. Again, U.S. retail investors have access to a variety of funds to gain exposure to Indian equities.
We are bullish on Indonesia. Like India, they have taken action to be more competitive on a global basis. We are also closely watching Hong Kong, Vietnam, and others.
In Europe, we are getting more interested, but not ready to commit in a big way yet. We are looking for tech companies (such as ASML Holdings [NASDAQ: ASML]).
Now, more than ever, the adage “not to fight the Fed” remains true. As we said last week, “Volatility is a wave; free liquidity is a tide.” Perhaps this week, then, some Shakespeare is appropriate:
There is a tide in the affairs of men
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures.
There are many reasons to be bullish. Don’t let fear be your primary consultant.
Thanks for listening; we welcome your calls and questions.
Please note that principals of Guild Investment Management, Inc. (“Guild”) and/or Guild’s clients may at any time own any of the stocks mentioned in this article, and may sell them at any time. Currently, Guild’s clients own AMZN, FB, and MSFT. In addition, for investment advisory clients of Guild, please check with Guild prior to taking positions in any of the companies mentioned in this article, since Guild may not believe that particular stock is right for the client, either because Guild has already taken a position in that stock for the client or for other reasons.
