Quarterly Market Update – 2020.Q3

Below you’ll find the returns for various asset classes spanning stocks, bonds, precious metals and the U.S. Dollar for the last month, quarter and year-to-date.

We observe that the dispersion year-to-date is extremely interesting. For example, there is a massive discrepancy in the performance between U.S. large companies and U.S. small companies. The S&P 500 (large companies) made 5.57% on the year while small caps lost 8.64% on the year. Foreign developed country stocks haven’t fared much better as they’ve lost over 7% on the year. I’ve talked about the recent concentration of returns in the five major tech names previously (Apple, Amazon, Google, Facebook and Microsoft) here and here.

The performance of silver has also caught my eye. It was by far the worst performer in September suffering a 15.5% loss but, even with that loss, silver remains the best performing asset on the list for the year making almost 30% in nine months!

The best performer in September was the U.S. Dollar with the USD ETF (Symbol: UUP) returning 1.68% in the month.

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Fundamentals

Liz Ann Sonders recently shared an interesting chart that highlights the significant disparity between technology stocks and financials+energy stocks. The gap in weighting within the S&P 500 between financials+energy stocks and technology stocks is the worst it’s been since 2000, which is simply another parallel between now and the Dot-Com Bubble of the late-90s.

Interestingly, the market surge from the March 2009 lows has primarily resided in the lowest quality stocks as measured by cash flows. In other words, the bottom 30% of stocks (as measured by cash flows / price) have far outperformed the top 30% of stocks (cash flows / price).

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The third quarter was the worst on record for bankruptcy filings putting the YTD total at 193 “by companies with more than $50 million in liabilities… This is the most for any comparable period since 2009, when there were 271 in the full year” – Danielle DiMartino Booth

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Here’s a chart of rolling 100-day bankruptcies…back to Great Financial Crisis levels.

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However, a bright spot is that housing appears to be holding up quite well. Anecdotally, here in Green Bay, it seems almost every house I’ve come across listed for sale is getting multiple offers above ask within days of being listed. Nationally, we notice housing prices surging as well.

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Chart from ZeroHedge

To me, the following are the most important fundamentals that I closely monitor each month:

  1. The U.S. stock market is at its most extreme valuations in history as measured by the most reliable metrics
  2. Bond yields are near the lowest they’ve ever been
  3. Corporate and government debt are the highest they’ve ever been on both an absolute basis and relative to GDP
  4. The Federal government is racking up record deficits
  5. Corporate bankruptcies are skyrocketing
  6. Unemployment is still high although it has improved markedly from the “pandemic high”
  7. U.S. corporate profit margins are falling
  8. The Fed remains very easy and is willing to let inflation exceed it’s long-term target for a time in an attempt to keep the economy propped up

Disclosures:
Past performance is no guarantee of future results. All investments maintain risk of loss in addition to gain.

Data from third-parties is believed to be reliable but accuracy is not guaranteed. Much of the data used to interpret the markets and forecast returns are often at odds with each other and can result in different conclusions. Many different factors impact prices including factors not mentioned here.

This is NOT investment advice but merely a general commentary. Individualized investment advice cannot be provided until a thorough review of your unique circumstances and financial goals is completed.

Views provided here are current only as of the moment of posting and are subject to change at any time without notification.