"The most important quality for an investor is temperament, not intellect."
- Warren Buffett, CEO of Berkshire Hathaway
Happy Wednesday,
The S&P, Dow, and Nasdaq were all flat in May. That followed a down April when the market pulled back significantly. In May, the S&P was flat, the Dow was up 0.1% and the Nasdaq decreased by 2.1%.
In our view, the market continues to be driven by two divergent realities. On the one hand, the Covid-19 recovery and continued consumer confidence and spending are pointing the economy in a positive direction. On the other hand, the markets are reacting to near-term inflation spikes in the U.S. (caused in part by the government support payments) and the war in Ukraine. These two competing realities have upset the markets, but we are in this for the long term, so we need to keep a steady hand and look to add value investments in the near term.
That said, in May I believe that started the "selectively buy the dip" portion of this general pull-back. We believe the markets remain uncertain, with pullbacks becoming a regular event in June and Q3 ‘22. Our public equities portfolio, which includes a significant amount of hedging, is still up more than 2% on a one-year basis, and 10.1% on a ten-year basis.
The S&P was flat at 4,132 in May, as the markets continued the rotation into only the best value investments, especially those that are profitable and have reasonable valuations.
The Dow was up 0.1% to 32,990 in May, as the markets continued the rotation into only the best value investments, especially those that are profitable and have reasonable valuations.
Nasdaq decreased by 2.1% to 12,081 in May, as Tech and Growth stocks continue to be restrained by their still-high valuations.
In May, Covid-19 infections, hospitalizations, and deaths in the U.S. trended downward to the extreme, and most public health professionals believe we have passed the Omicron and overall Covid peak. From a personal perspective, I received my 4th Pfizer booster shot and am feeling good about venturing out more. In addition, the Fed implemented the first of 3-5 rate hikes in 2022 to control inflation which has cooled economic expansion expectations.
In June, we believe the public markets will continue rotating to value stocks with real earnings and low PE ratios and will continue to punish growth stocks with still-high valuations. Back in early January 2022 we increased the cash/bond part of our public equities’ portfolio to 60% and expect to keep at least 30% liquidity in June so we can periodically take advantage of any market corrections.
We especially like the Financial, Industrial, Energy, Communications Services, select Tech and Utility sectors where values are more reasonable, and profitable growth stocks which should increase as the country opens back up for business. Morgan Stanley, Berkshire, Google, and Verizon (5% dividend) all continue to be top value selections as we view them as stronger and more nimble competitors in their respective sectors, and they do not have much exposure to Russia. View our latest Top 10 investments here.
Thanks again for your consideration and ideas. Have a wonderful June!
Best regards,
Marlene Oddo
Partner
PointFour Capital, LLC