Scientists Will Save Us
Humanitarian and Virologist, Dr Jonas Salk, March 29, 1954
In 1954, 40 year old virologist Dr Jonas Salk delivered to the world an effective (and free) vaccine against polio, a communicable disease that was paralyzing and killing thousands of Americans every year, mostly children. Polio was first identified in America in 1894 in Vermont with 132 cases. In 1916 it spread to New York City where it killed 6,000 (27,000 cases). By the 1950’s there were 60,000 U.S. cases annually. We feared the atomic bomb and polio. But in 1955, 2 million American kids were vaccinated. By 1979, polio had been eradicated from the United States. There are plenty of issues with our healthcare system and Big Pharma. But in the labs of these companies, there is an army of ‘Dr Salks’ determined to save the world from Covid-19. Their work looks promising based on early test results.
stock Market Corrections are Opportunities
According to Investopedia, a stock market correction is defined by a decline of at least 10%. In the 37 corrections between 1980 and 2018, stocks fell on average 15.6%, and lasted about 4 months. As I write this the stock market (S&P 500) is down about 10% from its recent all-time high. Corrections never feel good when we’re in them. The 'recency bias' in our brains tell us stocks are going to fall forever, despite a mountain of historic data that proves otherwise. Occasional declines in the market are healthy because they reduce prices to better align with economic fundamentals, they ‘correct’ an overheated environment. Fortunately, stock market corrections are buying opportunities. We are more positive today than a few months ago due to 1) the increased probability of effective vaccines (thank you scientists!), and 2) the Federal Reserve, the bank that bailed out your investment portfolio.
Research firm Morningstar recently published a 12 page research note on vaccines that stated the following:
“We’re increasingly bullish that most of the vaccines entering late-stage development in the United States will meet Food and Drug Administration guidelines for approval….We expect most U.S. adults will be vaccinated in the first half of 2021.” --Karen Andersen, CFA (Morningstar, 9/4/2020)
Effective vaccines are a game changer. According to former Wall Street Journal columnist Morgan Housel vaccines could ignite a level of economic growth in 2021 not seen since the aftermath of World War II. We remain positive on the long run sustainability of our 4 investment themes:
Global Aging (‘Demographics is Destiny’)
Digital Revolution (Technology will revolutionize most industries)
Westernization of Asia (aspirational consumers in China & India will likely drive the global economy over coming decades)
Cash Flow (Cash in not king, it earns zero at the bank, we are seeking stable, dividend income)
We’ve recently made moves in aviation, alternative energy and gaming. And we are reviewing additional ideas that should do well as the economy opens up further in a post-vaccine world.
Markets Will Outlive the Next President
According to respected Morningstar columnist, John Rekenthaler, presidential elections have very little impact on your portfolio. To illustrate his point, he compared economic growth (GDP) and job growth under 2 presidents that could not be more different: Obama and Trump.
2.5% (GDP under Obama)
2.4% (GDP under trump)
1.8% (job growth under Obama)
1.5% (job growth under trump)
Keep in mind our economy is a $20,000,000,000,000 ($20 trillion) beast. It’s virtually impossible for a single politician to have much of a sustained impact, even one with authoritarian tendencies.
There is a common narrative that republicans are more business friendly and therefore better for the stock market. However, historic data clearly refutes this. According to Bespoke (a data driven research firm, not political pundits), the stock market has performed better under democratic presidents:
source: Bespoke Investment Group, 8/12/2020
In 2000, thanks to Florida, we didn’t have a clear winner for president on election night. Markets hate uncertainty-the Nasdaq fell 19%, the Dow fell 10% but regained these losses once the supreme court announced a winner 6 weeks after the election. We expect more volatility as the election approaches. Cable news pundits and pollsters (spectacularly wrong in 2016) may say some something different, but data scientists say it’s a very tight race. We don’t have a national election. We have 50 state elections. The next president will be decided by a few swing states (Michigan, Wisconsin, Florida). Any volatility around the election, we would view as a buying opportunity, again, because of vaccines and the Federal Reserve.
The S&P 5
The S&P 500 is expensive by most historical measures but it’s not a bubble. The bubble is confined to the technology sector in my opinion. Thru 9/1/2020 the S&P 500 was up 11% for the year (before correcting recently). Goldman Sachs illustrated the following performance breakdown, again thru 9/1/2020:
Apple, Amazon, Google, Microsoft & Facebook…up 59% on the year
The remaining 495 stocks in the S&P 500…up just 1%
“Where to Invest Now” US EQUITY MARKET UPDATE September 2020 - Goldman Sachs
“We’d be lucky to have much before the end of the year. But then, in 2021, a number of other vaccines are very likely to get approved.” -Bill Gates (Bloomberg Businessweek, 8/13/2020)
The pandemic has forced us to focus on what’s truly important in our lives. It’s a stark reminder that anything can happen. This highlights the importance of building a portfolio that will address your future liabilities over the next 10, 20, or 30 years. Comprehensive planning is vital to prepare for future disruptions.
We are here for you. Let’s discuss further when you’re able.
Thank you and please stay safe.
-randy