In his monthly letter to clients, John O’Connell asserts that, despite the massive distraction of the U.S. election, what investors truly care about are interest rates, government spending, economic outlooks, jobs, income growth, and corporate earnings.
The trend remains up and, as the axiom says, the trend is your friend until it ends.
Monday, November 9, 2020
by John O’Connell, Chairman & CEO, Davis Rea Investment Counsel
Okay, so the election is over.
Trump continues to keep his lawyers busy, and make headlines as a result, but it is increasingly looking as if he’s screaming into the woods with fewer listening, including judges. (Editor’s note: Another image we like is a t
It was interesting to note that during Trump’s Thursday night briefing, filled with accusations of voter fraud, that most news stations quickly cut away from covering his rant.
Hopefully, the press’ fascination with the man has ended and they find some new traffic accident to report on.
Markets are increasingly hopeful that the cleansing of the White House will lead to a more bland but co-operative and productive political discourse.
Lest you think we have heard the last of elections, stay tuned for the kickoff of the mid-term elections in 2022. We can hardly wait.
As is usually the case, investors have expressed their bets on the outcome by putting the market basically where it was two months ago.
Investors have rightly concluded that what matters is low interest rates, government spending, continued good economic strength driven by very good jobs recovery, driving outstanding income growth, and improving corporate earnings.
The virus continues its spread around the world, with America winning the infection sweepstakes (USA! USA!)
Globally, various forms of government intervention to lessen the spread are being implemented at the local level and this has given investors’ confidence that widespread lockdowns, like we saw in late March, are off the table.
While it is early in the flu season, investors are rightly keeping an eye on vaccine developments with positive announcements anticipated shortly.
Investors are well advised to consider that we are so much closer to solutions now, than we were last April.
The consensus amongst the medical community is that widespread immunization will be available by the third quarter of 2021, with those most at risk in the health care industry being inoculated in the first quarter.
There is light at the end of the tunnel, but it will be a long winter. The good news is that we have all gotten a bit better at all of ‘this’ and as human civilization has proven countless times before, we have adapted.
We remain steadfast in our view that the companies in your portfolio are powerful brands, providing highly valued products and services, run by strong and time-tested leaders.
All the companies have adapted well to the ever-changing times, and some have demonstrated just how dominant and competitive they truly are.
“The trend is your friend” is a long-held phrase in the investing lexicon and we think it’s as truthful today as ever. This pandemic has acted to accelerate some powerful new trends. We have performed an audit of the companies in your portfolio to ensure that they are well placed to not just survive these long-term forces, but to advance and profit from these themes.
In the next few months, there will be more gnashing of the teeth as politicians debate:
- The amount of spending
- Shifting trade policy (could it get any worse?)
- Who will control the Senate in January (there is a chance it could change because of run-off elections in January but frankly, who cares)
- What the “Fed” will do with interest rates (nothing)
- And how fast a vaccine will be generally available (likely Q3, 2021).
The important thing to keep one’s eye on will always be the same—whether the businesses you own keep on doing what they have always done and, for the most part they have excelled in spite of incredibly tough circumstances at times.
The trend is your friend.