Featured speaker Lindsey Bell presented “Investing in 2021 – now what?” to the Minneapolis chapter on Oct 20th via webcast. Lindsey is the Chief Investment Strategist at Ally Invest. Ally Invest is the former TradeKing online broker, that now offers managed portfolios, self-directed trading, and automated investing.
Lindsey discussed current market conditions and laid out the risks and offsetting factors. The risk she sees are: 1) stimulus stalemate, 2) election risk, 3) slowing economic data, 4) COVID-19, and 5) vaccine timing. The offsetting factors helping to mitigate these risks are: 1) monetary stimulus 2) resilient consumers, 3) demographic trends, 4) improving 10-year yields, and 5) easing financial conditions.
Where do we go from here? The S&P 500 rebounded from bear market territory at the second fastest pace ever. Lindsey discussed the following points:
- State of the markets: Valuations remain elevated as the S&P 500 forward P/E is trading at 23.6x vs historic average of 16x. Earnings are projected to rebound in 2021 to 2019 levels ($164) and 2021 will benefit from year over year comparison.
- State of the Consumer: Unemployment remains high, but the consumer has been resilient. Retail sales in September marked a new high, as consumer spending has nearly recovered to pre-COVID levels. Existing homes sales at 13-year high. Personal savings is $1 trillion higher because of stimulus and consumers’ cash in the bank has increased $4 trillion. Consumer strength has been supported by fiscal stimulus and additional unemployment benefits. The recovery should continue, even if at a slower pace, until the next round of stimulus.
- State of businesses: Cash levels have reached new highs for both S&P 500 and S&P 600 companies. Net debt/EBITDA for S&P 500 companies in Q1 2020 was almost 25% lower than 2007 peak. Financial conditions, as measured by the St Louis Fed financial Stress Index, are improving at a much faster rate than in 2009. Uncertainty regarding economic policy remains high, and the recovery is dependent on reducing that uncertainty.
- State of global growth: IMF growth forecast for Q2 for advanced economies was better than expected and are showing signs of a more rapid recovery in Q3. Expecting 5.2% growth in 2021.
- Growth vs value: Growth has outperformed value nine out of the past 11 years. Value tends to outperform in the latter part of economic downturns and early on in economic recoveries.
- Small caps: Small caps have not underperformed the broader index by this much since the late 90’s. Watch the rolling12-month relative strength relationship for clues of a possible change.
