Despite a volatile first quarter, economic fundamentals appear to be improving. We are constructive on the equity market in the near-to-medium term, but we are closely monitoring inflation and interest rates.
Several pundits have raised the possibility that the current Covid-recession will be followed by a boom reminiscent of the Roaring '20s. Although we think that may be a tad too optimistic, we think the recovery will continue and feel “real economy” stocks could fare particularly well.
Despite ongoing weakness in the economy, stocks continued to rally in the third quarter. At first glance it seems perplexing, but a deeper analysis reveals that the market drivers are both rational and sustainable. In our view, the pandemic has created profound shifts in demand that have generated strong tailwinds for a wide range of firms.
Thus far the market has shrugged off the recent rise in Covid cases, but the situation remains fluid. In our view, the best strategy is to invest in companies that are able to grow during this time of stress, either organically or by increasing market share as weaker competitors fall by the wayside.
Rarely has market performance and sentiment changed so quickly than what has been observed in the first quarter of 2020. The start of the year was promising, with the S&P 500 climbing above 5% through the middle of February...