"Successful investing is about managing risk, not avoiding it."
- Benjamin Graham, economist, professor and the “father of value investing”
Happy Friday,
Overall, the S&P, Dow and Nasdaq were down in September, but most showed small gains for Q3 ‘21. That followed a very solid August where the market was up broadly across that board. In September, the S&P was down 4.8%, the Dow was down 4.3% and the Nasdaq dropped 5.3%.
In our view, the markets continue to be driven by the Covid-19 recovery phases, government support payments and the unyielding support of the Federal Reserve. There continues to be an optimistic feeling regarding the reopening of the economy, even though 25% of the population refuse to get the vaccine. The new Biden Administration vaccine mandate for firms with more than 100 staff will help to push that unvaccinated % down, hopefully into the 10-15% range. Also, the imminent approval of at least one vaccine for children 5-12 is a welcome event.
In addition, the probability of some form of tax reform later this year is adding to that uncertainty. Countering that is the real probability that a finalized $1.2T Infrastructure Plan will become law in October and the larger and broader bill of economic reform will likely be trimmed from it’s current $3.5T amount to something closer to $2.0T. Therefore, we believe the markets will remain a bit uncertain, with small pull-backs becoming a regular event for the rest of Q4 ’21.
That said, while September was not a good month, Q3 ’21 overall produced modest gains. Our public equities portfolio, which includes a significant amount of hedging, is up more than 7% YTD and up more than 18% on a one-year basis. In our view, growth is no longer the only “name of the game” and we believe that value stocks will help to drive the market higher, but at a much slower pace which is more consistent with history.
The S&P went down 4.8% to 4,307 in September, as the markets focused on the negative aspects of recent Covid and political developments.
The Dow was down 4.3% to 33,834 in September, as the markets continued the un-even rotation into value investments, especially industrial and consumer staples.
Nasdaq dropped 5.3% to 14,448 in September, as Tech stocks took a back-seat to lower PE ratio value stocks.
In September, Covid-19 infections, hospitalizations, and deaths in the U.S. continued to trend lower, but the Delta variant continues to take a toll in select low-vaccine areas of the country. Additionally, M&A transaction volume continued to be robust, and the Fed continued its unprecedented support of the economy. The Housing sector also continues to be a bright spot with strong consumer demand thanks to low interest rates.
In October, we believe the public markets will continue the slow rotation to value and industrial stocks and that overall returns will be positive, but mixed. That is not to say that growth stocks do not have a place in this robust economy. They do, but they will have to share the limelight with value stocks. We maintained the cash/bond portion of our public equities’ portfolio at 11% in September and expect to increase it in October to between 13-18%.
We especially like the Financial and Industrial sectors where values are more reasonable, and growth should increase as the country opens back up for business. Morgan Stanley, B. Riley, JP Morgan, Microsoft, Berkshire, J&J, United Health Care, BofA, Microsoft, and Honeywell all continue to be top selections as we view them as stronger and more nimble competitors in their respective sectors. Please go to our website for our latest Top 10 investments.
Thanks again for your consideration & for sharing your thoughts and ideas with us.
Have a wonderful October and 2021 ahead!
Best regards,
Marlene
Marlene Oddo
Partner
PointFour Capital