Stocks Gain Nearly 2% As Virus Continues Receding
The S&P 500 closed last Friday at 3,768.25 and closed at 3,841.47 this afternoon. The week started out promising enough when Goldman Sachs shattered expectations. Other financial earnings appeared to show that the financial industry, based on the adjustment of its Loan Loss Provision (LLP) sees the worst of the economic downturn behind us. Boy, we sure hope they are correct. In other positive news, the Philadelphia Federal Reserve’s business condition index jumped to 26.5 in January from 9.1 in December. The January reading was expected to be significantly lower.
The unexpectedly positive reading marks the highest level since February before the effects of COVID-19 stunned us all. Manufacturing activity being so positive certainly lends credence to the thrust of our three research departments, that 2021 will primarily be a year of robust economic recovery. The ISM factory index also hit 60.7% the highest level since August 2018. Our Head of Research Tom Lee noted that these levels are in fact, ‘boomy.’ That being said, manufacturing was significantly stronger in the Philadelphia region than in New York where activity receded 3.5 this month.
My colleague Tom Lee mentioned shortly after the pandemic struck that even if all of the companies that were direct ‘social distancing casualties’ were to permanently shut their doors that it would only account for about 7% of total US GDP. However, as we have continually noted, most of these stocks did not perish and in fact, proved they have survivability far beyond what many investors may have expected. Many of these stocks, which were at the ‘Epicenter’ of the COVID-19 crisis will likely have significantly greater earnings power as they made necessary cuts to stay solvent through periods of significantly depressed demand.
A new administration was successfully sworn in on the steps of the United States Capitol that only weeks ago were overrun with rioters. The plan introduced by the Biden administration, certainly on its’ face, seems like it has the potential to assist us in vanquishing the virus earlier than the current course; however, it is far too early to tell. We will be continuing to monitor progress with regards to vaccinations and the progress of the virus in an attempt to keep our investing family a step, or two, ahead of the crowd.
We received some questions about the new administration’s attitude about energy and whether it changes our recent bullishness on the sector. Tom Block assures us the political situation in Washington, the number of jobs in the energy sector (as well as which states they are prominent in), and the fact that oil is very much still the necessary oxygen that a heating-up economy will need to consume should be supportive to our existing thesis. Comparisons of Energy as in a position reminiscent of Steel or Coal has some valid analogs but breaks down when you consider the utter centrality of oil to so many industries that have had demand severely depressed as a result of the virus. One thing is sure, the coming economic boom will be run on oil or nothing at all. As inflation expectations and risks continue to edge up, so will the profitability of many firms now trading at or near replacement cost.
Our Head of Global Portfolio Strategy, Brian Rauscher, gave his 2021 Outlook webinar this week. Refer below to his note for a link to the replay. He has some exciting new insights for investors derived from his process-oriented research. Brian is known as ‘Rocky’ around the office for his proclivity in stock picking so pay careful attention to his webinar. In a matter of weeks, we will also be launching a new stock list called ‘Brian’s Dunks’ which we are very excited about. Stay posted in your email for updates.
Our Senior Crypto Analyst, Dave Grider, also issued a much-talked about price target on one of our favorite ‘Blue-Chip’ cryptocurrencies, Ethereum. He sees upside of over 600% on this dynamic and exciting new asset. Remember folks, as inflation may rear its ugly head significantly for the first time in decades that cryptocurrency has some exciting properties, and an impressive track record, as a hedge against inflation. Also, please don’t forget that we were the first major Wall Street research firm to cover cryptocurrency. We think we made the right call.
If you’d like a more equity-centric discussion of inflation risk and how certain industries will be affected, then be sure to examine Tom Lee’s January 20th blast which includes a comprehensive discussion on the macro-economic effects inflation would likely have on different sectors/industries of the wider economy. When inflation risk is being discussed on Tik-Tok, it means it might be time for you to begin thinking about what the issue could mean for your portfolio in the future. We have some great strategies for dealing with this silent killer of returns.
