The national elections have taken place. Politically, it appears that expectations for a “Scenario 2” outcome is most likely – Joe Biden winning the White House and the Republicans holding the Senate. There are some recounts yet to take place and court challenges to be decided as well as at least one if not two run-off elections for Senate in Georgia. However, I will state that with 99% certainty that the Scenario 2 outcome will hold.
There were some other election results which are worth mentioning:
- The Democrats lost seats in the House, rather than, as the pundits expected to gain seats. The big winners were women Republicans.
- Republicans increased their control over state houses which is important in redistricting following the 2020 census.
- The big losers were pollsters who came out looking downright stupid. That follows their schmeissing (another way of saying they got slaughtered) in 2016. This cottage industry is all but dead.
As I wrote in my most recent ‘My Gut Feeling” on October 14, I was not going to act in anticipation of the election but would be ready to react post-election. With uncertainty lifted, Justice Barrett sworn in and the likelihood of a worst-case election outcome not having occurred, markets rallied after the election. My reaction was simply to stay long and strong across all strategies. Last week, we saw a return to risk as growth stocks gained strong cash flows. I put some cash to work in Taiwan Semiconductor (TSM).
The stock market rally since the COVID lows in the first quarter is still intact. We have experienced a few quick and unannounced pullbacks of nearly ten percent since then. I see the major indexes making new highs as we round out a turbulent 2020.
Unfortunately, the political circus has obfuscated a very ebullient earnings season. I would also add that the new version of Apple’s (AAPL) iPhone, the iPhone 12 (in various sizes and shapes) just launched. I ordered my iPhone 12 Pro Max and plan to enjoy using it in all its 5G glory. Surging 5G demand was one of the reasons I put on TSM rather than add to AAPL.
Concern should be that: 1) interest rates, as a result of inflation do not rise, 2) that the rally in technology stocks does not broaden out to other sectors and, 3) valuations do not become overstretched as was the case in 1999. While in the back of my mind I know that any or all those conditions may occur, I do not see that in 2020. I am concerned for valuations once we get into 2021. Thus, we should remain bullish but vigilant for the balance of 2020 and 2021. To answer a popular question which is posed to me as to whether this is a good time to put more money into stocks, or begin to take some off the table, my response is the former and not the later.
Overnight futures indicate a strong open, once again dominated by technology stocks. As always, be cautious of a Monday gap open as it is likely to invite sellers to the party.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long AAPL & TSM – although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right-hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
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