“Life is a marathon, not a sprint. The old adage applies to many aspects of life, but perhaps none more than investing. Much like running a race, pursuing your financial goals requires careful planning and lots of hard work.” Vincent M. Oddo
Happy Monday!
I spent the past four weeks in Atlanta following up on several private M&A diligence efforts and observing a public market that wants to charge ahead, but is being constrained by basic financial fundamentals – the market is simply “overbought” as evidenced by high valuation multiples in the S&P, Dow and Nasdaq. Consequently, any economic event, such as the Coronavirus scare, is causing a flight to safety.
The markets moved higher in early January and much of the move was achieved squarely on the back of overall positive macroeconomic data. The “Phase1” China Trade Deal was certainly the foremost driver of this economic enthusiasm. While the trade deal is far from the agreement we originally envisioned, it is a good start, and it shows that both the U.S. and China have much to gain by cooperating on trade.
In the second half of January market forces and financial fundamentals drove the market back to reality with the S&P closing down 0.2% for the month. In many quarters the discussion is all about the economic impact of the Coronavirus and how that tanked the market in the final two weeks. I, on the other hand, blame the market downturn on good old financial fundamentals. When valuations get too high, there will inevitably be a correction. It only a matter of time and volume, but it will occur.
In January, the S&P 500 closed at 3,225 and ended the month down +0.2%. The Dow closed at 28,256 and ended the month down 1.0%. Nasdaq closed at 9,151 and ended the month up 2.0%. The Russell 2000 closed at 1,614 and ended the month down 3.3%.
In February, we believe the markets will continue their flight to safety as the correction takes hold and valuations come back to earth. The political environment with 2020 campaigns in full swing and the Impeachment trial at the forefront is vexing, to say the least. We read the market’s reaction to these events as being cautiously optimistic that things will work themselves out. While Impeachment was a foregone conclusion last month, it is certainly unlikely that the Senate will convict President Trump and the market reads that as a positive event.
So, we remain currently at 30% in cash in our public fund and expect to continue adding to that cash position over the next month. At some point, we will charge back into the market once the fundamentals come back into line with historical norms. We will also certainly be on the lookout for internal forces like a possible tax cut announcement at the State of the Union speech in early February which could move the market in a positive direction.
Thanks again for your consideration & for sharing your thoughts and ideas with us.
Have a wonderful February and 2020 ahead!
Best regards,
Vinnie
Vincent M. Oddo
Managing Partner
PointFour Capital, LLC
vincent.oddo@pointfourcapital.com