It’s officially summer and there is no greater symbol than the upcoming 4th fourth of July celebrations! Even though it’s most likely the U.S. won’t hit President Biden’s goal of 70% of American adults with at least one vaccine shot, there is an overwhelming sense that the end of this pandemic is near. Which is confirmed by a 14% return for the S&P500 year to date and continued positive economic data, especially in the jobs numbers;
– Private payrolls increased by 692,000 in June vs 550,000 Dow Jones estimate.
– Hospitality saw the most growth increasing by 332,000, a key signal the recovery continues.
Also, promising commodity data that supports my stated view that inflation fears have been overblown and the spike is transitory in nature and will normalize as supply chain issues are relieved;
– Lumber futures sank 42% in June, its worst month since 1978.
– Copper prices also eased down 8% for the month of June.
A slight cooling of input prices plays perfectly for Fed Chairman Powell and his interest rate plans. Let’s hope for a not too hot and not too cold, just the right temperature economy this summer.
After months of political posturing by both sides, it finally seems a revised one trillion-dollar bipartisan infrastructure bill will be past. But that’s not all folks, the Democrats are also planning to push the remainder of their “wish list” called the American Families Plan through reconciliation, a process that doesn’t require any Republican votes to pass through Congress. This second bill includes spending for Democrat-backed issues like child care, climate change, health care and education.
Its clear investors have been anticipating an infrastructure package ever since the presidential campaign. I discussed this theme late last year and highlighted how to best position portfolios to take advantage of the tsunami of stimulus on its way. Although gains have al- ready been made, the playbook remain the same with an over exposure to cyclicals. These companies will continue to benefit from stimulus uplift and continued tailwinds of the economic re- opening/recovery well into the second half of the year.
This year has seen a lot of back and forth be- tween the two most popular investment styles, growth and value. Growth stocks are those companies which investors believe will outperform over time due to their future potential. Where Val- ue stocks are companies that are currently trad- ing below what investors believe to be their true value. When categorizing style, it’s not always black and white with many companies falling into a grey area. This means that a single company could be categorized as either depending which lens an investor is viewing it.
Traditionally, the narrative for growth has been centered around mostly tech companies. Probably the most popular example of a group of tech companies would be FANG (Facebook, Amazon, Netflix and Google). These stocks have made headlines over the years for how much they influence the major indexes. One major tailwind for growth has been the never-ending drop in interest rates over decades. The lower the interest rates the better, as it makes all that future growth more valuable to current investors. Ever since earlier this year the US 10-year treasury rate has bounced from below 1% to above 1.7%, recently settling around 1.5%. Moves like these are bring- ing caution to investors that the long enjoyed tailwinds might easily turn into a headwind. I suggest investors utilize a GARP (Growth at a reasonable price) approach as growth is a key part of every portfolio. Not overpaying in the first place is a great way to protect portfolio from large draw- down during pullbacks and corrections.
Looking forward to a potential normalization in interest rates and a continued economic reopening, it might finally be the perfect timing for those more traditional value type companies.
I normally don’t mention specific stocks in
my newsletters, but I’ll make an exception for Boeing which I hold in portfolios. The main reason being that it’s success is a bellwether for the strength in the economy. Just this week United Airlines agreed to buy 200 Boeing 737 Max jets to overhaul its fleet and prepare for the anticipated rebound in corporate travel demand. When companies begin to express that level of confidence in the future, it’s time for investors to lesson well. Boeing is everything investors should be looking for in a company. It’s over 100 years old, check mark for longevity. Boeing also holds government defense contracts which are a very resilient revenue stream. Don’t get me wrong the troubles they had with the Max were a black eye on the company, but true iconic companies know how to survive and black eyes heal. Don’t miss the plane, literally!