Marc Cuniberti: The rotation begins
In my Aug. 10 Money Matters article entitled “A major shift may soon be upon us” I suggested the possibility of a rotation out of the high flying stocks of the last four months and into other sectors.
Specifically from that article, “There may be a surprise and viscous backlash on those companies whose stocks have exploded during the shutdown … that could slam in reverse the mindset and shopping list of investors.”
With the recent hammering of the indexes some stocks actually rose but they were far and few between and may not have included those high flying internet favorites. Although the article premise was rotation into a new list of stocks based on an announcement of a vaccine, apparently the rapid progress the nation is taking to reopen the economy may have started this rotation without an actual vaccine announcement.
I have several theories as to why this rotation occurred and may continue to occur. Some of those high flyers have flown so high investors just don’t buy the possibility they may go even higher. Valuations may just be getting too rich. Not to say these “stock rockets” can’t continue to rise. They could. It’s impossible to forecast anything where markets are concerned. But at some point stocks usually don’t keep going up in the proverbial straight line.
Investors may be saying enough is enough and therefore looking for the next sector to rise. Or they may simply be looking for better value elsewhere.
That said, the selloff was wide spread, fast and furious. But there were some jewels to be found in the carnage. Some financials survived and some even gained ground. Certain cyclical stocks may have also held their ground as well.
With a handful of stock indicators approaching all-time highs and some indexes even exceeding previous milestones, the disconnect between Wall Street and Main Street just seems to getting more ridiculous. I don’t know if ridiculous is the right word, but the ferocity of the stock recovery since the COVID-19 event began has indeed taken many analysts and investors alike by surprise and continues to do so.
With Labor Day behind us, the elections in front of us, no new stimulus/rescue agreement reached by Washington, COVID-19 nowhere near contained and a confirmed vaccine yet to be announced, the question becomes — can this market continue to ignore the possibility of severe economic damage from the shutdown?
This analyst has maintained since the shutdown began that unemployment claims would exceed 50 million, 25% of small businesses will permanently disappear and many bankruptcies will blanket the economic landscape. Adding to the carnage will be the seldom discussed outcome due to the rent/eviction moratorium. The fact that many landlords are your average every day Americans, it may mean that many mom and pop landlords will follow their tenants into insolvency. They simply may not be able to withstand the lack of rent due them yet put on hold because of the government edict. It’s safe to say some rents will never be paid yet costs to the landlords have no such moratoriums. The bills will have to be paid as usual and some may not be able to weather the economic setback.
Will the economy fully recover?
It’s a difficult assessment with many considerations. When the nation does reopen, many businesses will operate with fewer employees, having learned to streamline their operations through the lessons of the shutdowns. Many businesses won’t ever reopen.
Inflation, which is always present and seems to be increasing in certain areas, may gain more traction due to all the recent monetary stimulus which increases the money supply, which can lead to higher general prices.
With societal considerations on the increase, a hotly contested election and a nation more polarized than ever, the recent sell off may just be a blip on the radar screen or possibly the start of something more sinister.
Where investors flee to next is yet to be seen, but in my opinion, the big fall in many stocks has the possibility of being the start of something bigger. My original premise of a surprising rotation of funds remains.
Marc Cuniberti is an investor advisor representative of Vantage Financial Group, a registered financial advisor in the state of California. The opinions expressed are those of Mr. Cuniberti and may not reflect those of this publication or Vantage Financial. Insurance products are from Mr. Cuniberti and not affiliated with Vantage. California Insurance License #0L34249. Investing involves risk and you can lose Suite #1, Auburn.
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