“It’s a fool’s errand to go into the market now thinking that it’s a bottom and you’re going to go up from here.” David Rubenstein, co-founder of Carlyle Group
Happy Wednesday!
I spent the past month in Atlanta doing the whole social distancing thing and wearing a mask when in public. I did return to my gym and have learned how to run on a treadmill wearing a mask (this is not easy, the key being to not entirely cover your nose). This has been a real treat and it was the first time in more than 3 months I got to run indoors.
The public markets are still constrained by basic financial fundamentals – the market, we believe, is “overbought” as evidenced by the still-high valuation multiples in the S&P, Dow and Nasdaq. Currently reported valuation multiples, such as PE & PEG ratios are also likely to be inflated because so many listed companies have not revised their pre-covid-19 projections. Therefore, the disconnect between market performance and underlying economic health continues. There are lots of explanations but unlimited liquidity from the Fed continues to be our best answer.
In June, Fed action allowed the overall market to come-back a bit more with the S&P closing up 1.8% for the month. The markets also embraced three macroeconomic reports that showed improvements which include the following (1) the Conference Board’s Consumer Confidence Index for June confirmed a rise to 98.1%, (2) the Chicago PMI report for June confirmed a rise to 36.6, and (3) the S&P Case-Shiller Home Price Index report confirmed a rise of 4% in April.
In June, many states relaxed covid-19 shelter-in-place orders, but in some cases that has started a second wave of infection which will have to be dealt with quickly in July! I still blame well-intentioned, but wrong-headed, public policy at the Federal, State, and Local levels for shutting down our economy without a comprehensive plan to mitigate the initial impact of Covad-19 and then reopen the economy in a responsible manner as quickly as possible. But I would like to point out that the states of NY, NJ, and CT have all done an admirable job thus far in this regard.
In June, the S&P 500 closed at 3,100 and ended the month up 1.8%. The Dow closed at 25,813 and ended the month up 1.7%. Nasdaq closed at 10,059 and ended the month up 6.0%. The Russell 2000 closed at 1,441 and ended the month up 3.4%.
In July, we believe the public markets will begin a correction of perhaps 10-15% which should represent a buying opportunity during Q3.
In our public portfolio in June, we moved our cash position to 60% and expect to put a substantial amount of that back into the market in quality investments at superior values over the next quarter. Take a look at our latest TOP 10 investments list for investments we like today.
Thanks again for your consideration and for sharing your thoughts and ideas with us.
Have a wonderful July and 2020 ahead!
Best regards,
Vinnie
Vincent M. Oddo
Managing Partner
PointFour Capital, LLC
vincent.oddo@pointfourcapital.com