Outlook for August 2020

Q2 earnings season is in full swing and the big (and small) tech are knocking it out of the park. Trillion-dollar companies are jumping higher by 5-10% in a matter of hours. Tech stocks may be the most crowded trade, but it is also seeing immense tailwind that has accelerated adoption rates & provides a clear path for increased growth over coming years.

It also looks like inflation is being stoked left, right and center. In the US, fiscal stimulus is expected to continue until the end of the year and monetary stimulus expected until next spring. In other words, no one is taking the punch bowl away, so party on!

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Outlook for July 2020

Half the year is in the books, with Q2 2020 US stock market return ringing in the best quarter since 1987! Most of the returns have come from the strong performance in the tech sector, while other sectors have lagged, so anyone heavyweight in tech has enjoyed the great returns over the past few months.

Q2 earnings results will be interesting to watch as it will be the first reporting of full quarter amidst the pandemic. Expectations are pretty high as the multiples have expanded quite a bit for some names.

On the central bank front, the Fed has reduced the daily liquidity, so some weakness seems to be lurking. There is already some talk of continued support both on monetary & fiscal front, esp heading into the US election cycle over the next few months.

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Outlook for June 2020

May was a mixed month for investors. The growth stocks continued climbing and reaching all time highs while the value stocks continued suffering (as expected), although we saw a bit of a rotation from growth to value in the last few days of May.

Some secular tailwinds have helped the tech-focused growth stocks — such as SaaS, e-commerce, fintech etc. My focus remains on this area as we adjust to the new normal, looking across the chasm of this pandemic.

On the central bank front, the Fed has reduced the daily liquidity to “just” $5B a day. (Can we expect another taper tantrum?) The Fed indicated that negative rates are not a good tool, but as we have seen elsewhere, it may be out of the Fed’s control. The market always dictates what an appropriate yield is & I will be keeping a close eye on this front.

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Outlook for May 2020

Well, that rebound was much faster than expected. The stock market is back in bull mode after some good earnings releases over the past few days. Investors expecting the worst from companies like Alphabet & Facebook noted that the ad market slowdown wasn’t as bad. In addition, the companies were buying back stock providing a floor on the prices. So, the largest companies in the world are holding up the market pretty well.

The central bank panic also seems to have taken care of vol spike we saw in March. Vol is now down to the lows-to-mid-30s…and the US Fed after a massive expansion in balance sheet has started reducing the pace. It will be interesting to see what the next move will be from the central bankers as the world is used to getting a new hit everytime the last round of drugs wear off.

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Outlook for April 2020

What a difference a month makes. March 2020 was complete mayhem as all markets (stock, bond, currency, commodity markets) whipsawed day after day. The equity markets saw one of the fastest bear markets recorded as markets sold off aggressively and seem to have recovered a bit. Suffice to say, there is plenty of confusion on the future of the economy as we are in the midst of a recession, possibly even a depression.

The panic has gripped the central banks as well. Central bankers around the world have cut interest rates aggressively and unleashed QE programs while governments have picked up the pace on fiscal stimulus to complement the monetary stimulus.

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