With the unedifying spectacle of the first Presidential debate behind us, and the election just over a month away, we believe markets are continuing to shift into a mode driven more by politics than by the pandemic. Daily new U.S. confirmed cases and deaths are at the same levels as the beginning of September, and there is some anxiety about the potential for cases and mortalities to rise as autumn comes to the northern hemisphere.
As we pointed out in last week’s letter, the two candidates present starkly different options in terms of tax policy, and in terms of sectors and industries that would be helped or hindered under their administrations.
Even so, there are many themes that will remain intact, growing, and accelerating no matter what happens on Election Day and in the weeks that follow. Software, business digitization, telepresence technologies, cloud migration, data analytics, artificial intelligence, the internet of things, transport electrification and battery technology, 5G, and biopharma are all secular themes that have been accelerated by the pandemic, and those tailwinds will persist. Many large pharmaceutical companies have cash to deploy in making acquisitions of smaller development- and clinical-stage firms. Some lagging themes adversely impacted by the lockdown recession will rebound, but in our view, these will be shorter-term opportunities; secular growth will remain in tech and healthcare.
Another critical aspect of financial markets that will persist no matter who occupies the Oval Office will be the backstop of the world’s central banks and fiscal authorities. Again, to be clear, we understand that in the long run, the policies now being implemented will likely have negative consequences — particularly the risk of a “Japanification” arising from persistent low growth, low inflation, and elevated debt. Investors will have options under those circumstances, and it is important for you or your advisor to have a global view for when the day comes to look for growth outside the United States, and perhaps outside the developed world entirely. But for now, the liquidity, valuation, and growth story still favors the U.S. and the leading themes mentioned above.
With the ongoing inflation/deflation tug-of-war, even in the face of such unprecedented free liquidity, gold may find itself making little progress in the near term. In the medium and long-term, it is an essential component of any portfolio.
Also, a timely reminder to our retired readers and clients: part of the CARES Act signed earlier this year permits retirees to forgo taking this year’s RMD (required minimum distribution). This waiver includes any retirement account subject to RMDs, such as IRAs, 401(k)s, Roth 401(k)s and inherited accounts.
Thanks for listening; we welcome your calls and questions.
