"Never bet against America. That is as true today as it was in 1789, during the Civil War, and in the depths of the Depression. American magic has always prevailed, and it will do so again." - Warren Buffett from his 2020 Annual Meeting
Happy Tuesday!
Overall, the Dow and S&P 500 both locked in their best August in more than 30 years. This is a real conundrum for many avid market watchers. While this is certainly an optimistic response to the Covid-19 pandemic which cratered markets in March 2020, it does seem at times to be a bit too much, too quickly. I certainly believe that there will be a pause at some point soon.
The upcoming Presidential election season is just around the corner and the two camps are getting ready for a bruising campaign. It is certainly too early to determine which way the markets are tilting, but reasonable men and women can agree that Biden is a man of decent character and exemplary leadership, which can’t be said about Trump.
The Dow gained 7.57% in August, its fifth positive month in a row for the first time since its 10-month streak ending January 2018. The Dow had its best August performance since 1984 when it gained 9.78%.
The S&P gained 7.01% in August, its fifth positive month in a row for the first time since its six-month streak ending September 2018. The S&P had its best August since 1986 when it gained 7.12%.
The Nasdaq gained 9.59% in August, its fifth positive month in a row. The Nasdaq had its best monthly performance since 2000 when it gained 11.66%.
The growing number of coronavirus cases in the world, and specifically in the US, along with the associated constraint on full-scale business re-opening in the US continues to stress investors’ minds. In addition, the escalating nature of the US-China trade war that rose its ugly head in July and August is also weighing on investor’s minds.
Countering this negative news, the Fed again gave the market what it “wanted.” Fed Chair Jerome Powell has committed to keeping interest rates at historic lows and gave no real insight on when they might be raised stating. The Fed is “willing to allow the economy to operate at full strength even if it means a modest overshoot of the inflation objective.” This kind of unprecedented support from the Fed is, in my opinion, the leading factor in the strong market reaction.
In August, the S&P 500 closed at 3,500 and ended the month up 7.1%. The Dow closed at 28,430 and ended the month up 7.6%. Nasdaq closed at 11,775 and ended the month up 9.6%. The Russell 2000 closed at 1,562 and ended the month up 5.5%.
In September we believe the public markets will continue drifting higher. I believe that out-of-favor lower-PE Dow companies represent a continued buying opportunity during Q3 ‘20. I especially like the Industrial sector where PE ratios are very reasonable, and growth in this sector should increase as the country opens back up for business.
In our public portfolio in September, we plan to continue reducing our cash position (now standing at 13%) and continue shifting equity investments from growth technology into more defensive 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 September and 2020 ahead!
Best regards,
Vinnie
Vincent M. Oddo
Managing Partner
PointFour Capital, LLC
vincent.oddo@pointfourcapital.com