The U.S. Market

The rotation continues, and for a few more months one industry after another may see a fall in stock prices while the broad indices move ahead very slowly or rotates sideways.  Interest rates will rise, but as long as five-year bond yields stay below the CPI, we will see people borrowing money to grow their businesses, buy stocks and real estate, and spend. Currently, five-year U.S. Treasury bond rates are about 0.9 % and CPI is about 1.7%.

We are convinced that small Companies will outperform large; cyclical, industrial, and consumer-focused companies will outperform the broad markets; and high-P/E or infinite-P/E software and tech companies where revenues are not growing at a very rapid rate are in danger of falling back to earth over the next few months.

In our view, the U.S. stock market sectors that appear to have potential for the remainder of 2020 are small companies in general; retailers of many types: discount, home improvement, auto retail, farm equipment and services, and select restaurants; select travel related companies; homebuilding; entertainment; travel; autos; semiconductors; gaming; and lodging.

Global Markets, Currencies, and Commodities

We anticipate that the U.S. dollar will maintain a trend of slow appreciation versus most major currencies. The demand for raw materials will continue, especially for technologically necessary materials such as copper, lithium, aluminum, platinum, palladium and rare earths.  Gold has been under pressure as the U.S. dollar has rallied and interest rates have risen.  Much of the benefit of higher interest rates and expected inflation has flowed to bitcoin.  Bitcoin is in a trading range; we would be buyers of a breakout, or of a fall to the bottom of that range.

Copper and aluminum, while now overpriced, are thematically attractive, and we would be buyers on weakness. 

Foreign Stock Markets

Our favorites remain Japan, South Korea, and India. Japan and Korea benefit from economic policies that encourage growth and the production of tools, machines, robots, and equipment and technologies that will be in demand as the world expands infrastructure spending and the demand for heavy equipment and manufacturing efficiency grows globally.

India will benefit from good economic policies and by the opening of their economy to technological improvements in delivery of services to the public and to India’s financial system.  The cutting of stifling bureaucracy has been slow, and many forces want to resist change, but the current government is making strides in modernizing and simplifying the byzantine Indian administrative structure

Thanks for listening; we welcome your calls and questions.