“Crisis or Recovery” was the subject of Chase Investment Counsel’s 47th investment conference, held via Zoom on November 18th, 2020. Presenters included Chase Investment Counsel portfolio managers Peter W. Tuz, Buck Klintworth, and Clay Sefter as well as political commentator/economist Steve Moore and U.V.A. Darden School of Business professor Dr. Robert Bruner.
Peter W. Tuz, CFA, CFP, president & portfolio manager, CICC
“The big conundrum is how do you invest now knowing that things might be bleak over the next few months because of Covid, but will be much better later next year?”
There are some positives and negatives to think about.
The period from November – May is generally the better six-month period for stocks than from May to October.
Bond yields are low providing little competition to stocks
There is be plenty of cash on the sidelines that can go into markets.
The Fed seems determined to help the economy even if Congress isn’t.
Covid will be behind us sometime in 2021.
The first year of a presidential term is the weakest of the four-year presidential cycle. Since 1833, according to Stock Market Almanac, there have been 46 “first years,” 22 up and 24 down. A “Blue wave” or sweep is still possible depending on Georgia Senate races in early January.
Debt is at record levels in many places. Rising rates would hurt.
At least for a few more months, Covid is with us and getting worse. How will this affect near-term economic figures?
Under a new president, payroll tax rates, income tax rates, capital gains tax rates and estate tax rates all could rise. This hurts.
Ironically, for all the fretting we do about who is the president or who controls Congress, historical data shows mixed results.
Going back to 1929, the stock market rose over nearly every president’s term, no matter which party he belonged to. For a single president, the winner was the Clinton administration when the market rose 203%. The worst was under George “W” Bush when the equity markets fell 32%. He faced the 9/11 bombings early in his term and the 07-09 financial crisis later in his term. So outside events can and do come along that affect markets no matter who is running the country. The important thing to note is that in the 90 years since 1929, markets rose 59 times and fell 31 times – up 2/3 of the time and down 1/3 of the time.
Historically, economic growth in the U.S. is also pretty agnostic when it comes to who is president. There has been good and bad growth under presidents of each party. It does, however, seem to matter to markets who controls Congress. Although economic growth is pretty consistent at about 3% annually despite who controls Congress, markets have clearly liked a split Congress more than one-party control.
So, fretting over who runs Washington, is largely a futile effort, Mr. Tuz added. It’s more important to figure out what industries and companies will grow or shrink over the next few years than worry about who runs the country. Ask yourself: “How much will 5g phones help Apple or Verizon in 2021 and 2022?” Or: “If there is a broader public health insurance option would it hurt United Health?” Or: “When Covid ends, will we all drive more and what will this do to the price of oil that collapsed earlier this year? And what will it do to the “work from home” stocks that have done so well in 2020?”
Mr. Tuz believes that S&P 500 could be anywhere from 3100 to 4000 a year from today even though at 3600 (Nov. 17th) it is high at 21x expected 2021 earnings versus a long-term average of about 16x earnings.
You can watch Mr. Tuz’s commentary below: