“Nothing can stop America when you come down to it, even with the scariest of scenarios. It may have been tested during the Great Depression, and it may be tested now to some degree. In the end the answer is never bet against America. That in my view is true today as it was in 1789 and even was true during the Civil War and depths of the depression. In 2020, we are now a better country as well as an incredibly more wealthy country than we were in 1789.” - Warren Buffett from his 2020 Annual Meeting
Happy Monday!
I spent the past month in Atlanta continuing to social distance and wear a mask when in public. This seems like a pretty small accommodation compared to the tremendous social, health, and economic benefits.
Overall, the markets were left a bit in check in July except for the mighty Nasdaq index which moved 3.7% higher again. The Nasdaq is now up nearly 20% in 2020, surging forward on the broad shoulders of the information tech sector which rose 5%. The Nasdaq’s move also came as the earnings season continued to roll forward with a number of highly weighted heavy hitters reporting. The schedule included Apple (AAPL), Amazon (AMZN) & Facebook (FB) which all beat Wall Street expectations while investors saw their respective valuations swell significantly.
However, the growing number of coronavirus cases in the world and specifically in the US along with the associated delays or rollbacks of re-openings in the US continued to plague investors’ minds. The US now has 4.6M confirmed cases up from under 4M confirmed cases at the end of July.
A report also confirmed that US Q2 GDP had precipitously dropped at an annualized rate of 32.9%, the deepest quarterly downturn on record. Congressional negotiations over an amazing 5th coronavirus relief or stimulus bill were slowed this week as politicians wrangled.
Countering this negative news, the Fed gave the market what it “wanted.” Fed Chair Jerome Powell kept interest rates at historic lows and gave no real insight on when they might be raised stating, “Fundamentally, this is a disinflationary shock…There’s a lot of discussion over how this might lead to inflation over time. We see core inflation dropping to 1%. I do think for some time we’re going to be struggling against disinflationary pressures rather than inflationary pressures.” He also added, “I think in the broad scheme of things, that there will be a need both for more support from us and more fiscal policy. You see the ongoing discussions that they’re having. It suggests to me that both sides, they’re wrangling over various provisions but nonetheless believe that there is the need for some additional fiscal support.”
The escalating nature of the US-China trade war that rose its ugly head in July also seemed to drift away from the press and investors’ minds as the month proceeded.
In July, the S&P 500 closed at 3,232 and ended the month up 4.3%. The Dow closed at 26,428 and ended the month up 2.4%. Nasdaq closed at 10,747 and ended the month up 6.8%. The Russell 2000 closed at 1,480 and ended the month up 2.7%. In August we believe the public markets will continue drifting higher, especially out-of-favor lower PE Dow companies, which represents a continued buying opportunity during Q3.
In our public portfolio in July, we reduced our cash position to 15% and began putting a substantial amount of cash back into the market in quality investments at superior values. (Take a look at our latest TOP 10 investments list.)
Thanks again for your consideration & for sharing your thoughts and ideas with us. Have a wonderful August and 2020 ahead!
Best regards,
Vinnie
Vincent M. Oddo
Managing Partner
PointFour Capital, LLC
vincent.oddo@pointfourcapital.com