Market Commentary – Third Quarter 2020
The third quarter of 2020 continued to witness higher prices in the US Stock Market driven primarily in technology stocks and more specifically in the largest market cap tech stocks. We even started September off by making new all times highs in the S&P 500 that exceeded the previous highs seen in February of this year. Given the severity and swiftness of the plunge in the US stock market back in March and the still hobbled global economy, I don’t know of many that would have predicted such an outcome – but here we are!
Clients who have followed markets for years have started to ask the question, “Is this all smoke and mirrors and are we simply setting ourselves up for another crash?”. While the future is always uncertain and subject to surprise us all – we believe it’s important to have a framework that will help us to navigate the waters and hopefully avoid crashing up on the rocks. One of the investment themes that we continue to gravitate towards in this new environment is to take a “Barbelled Approach” to equity market risk. Meaning on one end we want to make sure we own the companies that will benefit from the disruption that happening in our business and personal lives. Technology comes to mind with the move toward a heavy dependence on remote work… but not to be overlooked should be other areas like housing and the move away from dense urban areas. One might not have expected Home Depot, Lowes and a home furnishings company RH to flourish as they have with unemployment in the country at such elevated levels… but the people who still have jobs and can’t travel are spending it on their homes! In addition to companies that are taking advantage of the disruption, we also want to be mindful of owning businesses at the other end of the Barbell – those companies that will benefit from the necessity of the populace to spend money on their products and services – Companies like Waste Management and Sempra fit nicely into that theme along with a number of healthcare and consumer staple companies. Whether the economy recovers in a robust manner or not over the next few years, these companies should be able to predictably grow earnings through whatever transition our economy ultimately undertakes.
Bubbles bubbles everywhere… recently while reading a research piece, they referenced George Soros, when asked about bubbles commented – “I look for them”… when prompted as to why, he remarked “That’s the quickest way to make money!”. Investors have benefited far more than the common American Household during this recent stabilization and recovery period because they own assets … and right now we are seeing “Asset inflation”. Recently I listed my home for sale in South Carlsbad – in one weekend I received 18 written offers and the home went into escrow 10% over the asking price. There’s a current feeding frenzy for affordable and well-appointed real estate in San Diego – a byproduct of mortgage rates at sub 3%. As I’ve mentioned on many of my client calls of late – all of this is well and good for the time being, but know this – if such low interest rates are a support for today’s prices on a myriad of assets… might higher interest rates also be an equally destructive force? The sun is shining, and we will attempt to make our hay, but be advised – we see bubbles, bubbles everywhere.
 Bespoke Investment
Koa Wealth Management
11260 El Camino Real, Unit 220, San Diego, CA 92130
This material should not be considered a recommendation to buy or sell securities or a guarantee of future results. Koa Wealth Management, LLC is a registered investment adviser. Registration does not imply a certain level of skill or training. More information about Koa Wealth Management, LLC can be found in our Form ADV Part 2, which is available upon request or by visiting our website at www.koawealth.com/disclosure. Past performance is not a guarantee of future results. All investment strategies have the potential for profit or loss; changes in investment strategies, contributions, or withdrawals may materially alter the performance and results of a portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client’s investment portfolio.
Third Quarter 2020 MC PDF