Your Money - Friday October 30th 2020

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Well October got a little scary especially for high flying tech stocks. In my opinion investors that have been riding the tech wave need to understand that stocks never go straight up and when PE multiples get stretched as much as they have over the last six months, they have to expect the occasional pullback.  Don’t get me wrong, companies like Microsoft, Google and Facebook are amazing success stories. They have become common household names. If I had said “google” a cake recipe 20 years ago, you would likely have said “huh?” Today I don’t even have to say “google” if you want a recipe, you just use google it and after thumbing through several paid ads, you would find one to your liking. Then again you might use Safari if you are an Apple faithful.

Which brings me to my next point. These tech companies are now part of our everyday life. So much so, that one has to question whether they can continue an exponential growth curve. I suspect not and its one of the reasons (in my opinion) why the stocks fell this week despite otherwise strong earnings…  Well that and the obvious uncertainties surrounding additional economic shutdowns and an US election that may be far from settled Tuesday night. The counting may go on for weeks which means politicians are unlikely to approve another stimulus package before Christmas.

Having said that, one has to recognize rebounding economies on both sides of the border. This week the US economy reported a 33.1% increase in GDP. US Personal Income jumped 0.9 in September, Personal Spending up 1.4% and Consumer Confidence increased from 80.4 in September to 81.8 in October. Clearly the US economy is firing on five cylinders or maybe six but in a V8 that still leaves two that are misfiring or not at all.

What does that mean for portfolios? Well in my opinion, you need to focus on the long term outlook. The US elections will resolve themselves in 2021, the pharmaceutical industry will likely develop a vaccine and governments will provide additional stimulus to support the ailing sectors of the economy. Other drivers include surging Asian economies and their demand for raw materials including food products, the roll out of 5G infrastructure and a new paradigm focused on labor working from home. You will likely see more residential housing and an emptying out of high density urban settings. Finally, if the Democrats get a clean sweep, an acceleration of environmentally friendly industries, products and services. That’s what I call a silver lining behind the current dark clouds. Failing that a little gold in your portfolio almost never hurts.

Happy trading.

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Steve Bokor

Steve Bokor

Portfolio Manager