“I made my first investment at age eleven. I was wasting my life until then”
- Warren Buffett
Happy Tuesday,
Overall, the S&P and Dow were up in May, but the Tech-heavy Nasdaq was down. That followed a very solid April where we predicted a pull-back in the high-flying Tech stocks. The S&P was up 0.6%, the Dow increased 1.9% and the Nasdaq declined 1.5%.
In our view, the markets continue to be driven mainly by the Covid-19 recovery timetable, Covid recovery government support and the unyielding support of the Federal Reserve. There continues to be a generally optimistic feeling regarding the vaccine rollout, but the uncertainty of timing and a possibility that variant strains of the virus will push our recovery backward is producing a lumpy performance. In addition, tax reform is also adding to that uncertainty. It would not surprise us if the market remained a bit uncertain, with small pull-backs becoming a regular event in the rest of Q2 ‘21.
That said, May was a very good month. Our public equities portfolio, which includes a significant amount of hedging, is up almost 10% YTD and up almost 30% on a 1-year basis. In our view, growth is no longer the “name of the game” and we believe that value stocks will lead the market up higher, but at a much slower pace.
The S&P went up 0.6% to 4,204 in May, as the markets focused both on value investments and the hope for a fast rollout of the Covid-19 vaccines to address the pandemic.
The Dow accelerated 1.9% to 34,529 in May, as the markets continued the rotation into lower PE, value investments, especially industrial and consumer staples.
Nasdaq decreased 1.5% to 13,749 in May, as Tech stocks pulled back after getting ahead of the overall market despite solid growth and earnings improvements.
In May, Covid-19 infections, hospitalizations, and deaths in the U.S. all trended dramatically lower as vaccinations have ramped up quickly. Investors have also shrugged off any of the negative aspects of how we will pay for the $1.9T Recovery Plan and the $2T Infrastructure Plan that has been proposed by the Biden Administration.
Additionally, M&A transaction volume continued strongly, 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 June, we believe the public markets will continue the slow rotation to lower PE, value and industrial stocks and that overall returns will be positive, but mixed. We increased the cash/bond portion of our public equities’ portfolio to 35% in May as we had projected last month. We continue to believe that value stocks represent the best buying opportunity during the rest of Q2 ‘21.
We 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. Morgan Stanley, Verizon, B. Riley Financial, JP Morgan, Microsoft, Berkshire, Johnson & Johnson, United Health Care, BofA 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 TOP 10 investments page to see the full list.
Thanks again for your consideration & for sharing your thoughts and ideas with us. Have a wonderful June and 2021 ahead!
Best regards,
Marlene
Marlene Oddo
Partner
PointFour Capital, LLC