Review & Outlook
July 15, 2020
In communicating your quarterly reports, we are again emphasizing brevity and deferring more detailed remarks for mid-quarter. Much as this approach constrains our views to a few words, we’re finding a two-stage process less disruptive, and more congruent with the rest of our incremental style of management. We believe more timely, efficient communication works for all of us.
For now, we have the pleasure of reporting that your stocks continue their strong rebound:
- Your Stocks were up 21% on average for the quarter, and 12.6% over the last 12 months.
- Accounts stand even to fractionally ahead year-to-date.
- Volatility remains high, skewed favorably, but is trending lower.
- With 6 months to go, Stocks could deliver full-year results approaching 10%.
Though neutral and cautious in our last report, we have since adopted a more constructive stance:
- Stock Cash Reserves at 18%’s trended lower through purchases and rising valuations.
- Stock BUYS topped SALES nearly 2:1 in the quarter, completely flipping the 12-month ratio.
- Trimming Stock positions to make room for Buys means you should check your Capital Gains.
- Bond BUYS beat calls and maturities extending the struggle to generate fixed incomes.
Our positive outlook based on recovering trends for the balance of the year is not without risks:
- COVID-19 may produce temporary setbacks, but broader economic activity is now heading up.
- The market direction set by Fiscal and Monetary interventions matters more than value metrics.
- The new Rust Belt sectors (Hospitality, Travel, and Retail) will constrain the rebound and risk
overvaluation in stronger sectors (Tech, Meds, and Internet).
In sum, current events will likely accelerate shifts in the economy that have long been in the offing. Rushed together by the pandemic, their breadth could drag in ways unseen since the stagnation of the 1970s. Change in the Investment Climate on this scale warrants revision to our Investment Plan projections – a review currently underway. Key for now is that we expect to see higher returns for Stocks, lower for Bonds and more volatility for both. While overall the changes may seem nominal, combined volatility could make progress less consistent, and harder to keep.
At least that’s the way we see it for now. As always, should you wish to discuss the specifics of your portfolio or review your progress, please feel free to call.
James W. Mersereau, CFA, CIC
Daniel A. Kane, CFA, CIC