North American markets today, Wednesday, viewed several hours before the 9:30 a.m. EST opening appear poised to start mixed as the DOW is safely in the green while the S&P 500 and NASDAQ are in the red. However, at time of writing, both the S&P and NASDAQ are improving, and it is possible that either or both could turn positive during the morning.
European markets are open at time of writing and are also mixed as the DAX is in the green while the FTSE 100 and CAC 40 are negative.
The safe havens of gold and silver are in the green. The Canadian dollar is down while the British pound and Euro are trending up.
Investors and analysts are awaiting several developments today and the U. S. Federal Reserve rate decision expected for 2:00 pm. EST tops the list. Investors are also looking for the impact of recent reports on AstraZeneca PLC shares and updates on vaccine shipments from other companies. They will also be looking for the potential impact of the expanded lawsuit filed against Google. Alaska, Florida, Montana, Nevada and Puerto Rico yesterday joined the suit originally filed by Texas and accusing it of breaking antitrust law.
In recent editions of this column, I have suggested that investors have many factors to consider as we contemplate the global recovery. While a healthy questioning of the strength of the recovery seems understandable, the overall outlook for economic growth continues to improve – though somewhat bumpy -- driven by frantic production of vaccines and equally frantic distribution in many countries.
At the same time, various government support programs including United States President Joe Biden’s $1.9 trillion fiscal stimulus package aim to boost consumers and businesses until a stronger recovery can kick in, (though again, doubt is understandable).
Household net worth is at all-time highs and what is sometimes termed ‘revenge spending’ or more formally termed ‘pent-up retail spending’ appears likely to boost economies and retail sectors.
Although bond yields have risen unexpectedly fast, we can be reasonably believe that governments will keep interest rates low until the job market firms up and that is going to take some time.
All of this being the case, economic recovery, though perhaps bumpy, uneven and disjointed is with us and the stock market promises to be equally bumpy, uneven and disjointed. That leaves investors with a number of difficult decisions to make.
Heading the list for many is the old-time 60/40 rule that was central to conventional thinking when I began covering the financial world. Essentially the rule taught that depending on an individual’s age, financial requirements and other factors, his or her portfolio should contain 60% equities and 40% fixed income. Low interest rates now guarantee that fixed income assets will not provide the kind of income – especially retirement income – that many investors need. Investors saving for retirement—or already retired -- face an unappetizing choice: take on more equity risk than retirees would have formerly considered in hope of greater return or play it totally safe with bonds that can bring a negative return after inflation and taxes.
ESG (environmental, social and governance investing)– and the amount of an individual’s commitment to it – is another major decision. However, the rush to ESG may bring some familiar problems. “Investors feel better about limiting their investments, but this focus is also driving underlying securities to valuations that may not be sustainable long term,” explains Jay Nash, Senior Vice President at National Bank Financial in London.
As with any other type of investment, investors need to pay attention to the valuations of what they hold, Nash warns.
While ESG investing is worthy and socially correct dividend yields are only as good as the underlying cash flow being created. Too often investment basics are ignored in an effort to fulfill a specific investor desire or goal, however worthy.
“In the case of ESG one should be cautious about accepting shorter-term return history as “repeatable,”. he says. “There are a limited number of funds with track records going back 5-10 years which, when examined for their relative annual return in the early years, may offer investors a better idea of what to expect in the future, Nash says.
Another decision involves the weighting to be given to electric vehicles or EV investments and the selection of EV equities in a portfolio. The decision is becoming increasingly complex as there are new developments regularly. Investing in EV means considering three types of companies: pure plays such as TESLA Inc. and Xpeng Inc., suppliers such as battery companies including Lithium Americas Corp. and Enphase Energy Inc. and legacy companies such as Ford, General Motors and Volkswagen which have announced huge commitments to EV.
Volkswagen is doubling down on its EV commitment according to Wedbush Securities. It plans six ‘giga factories’ in Europe by 2030 and also says that 70% of its European sales will be EV’s by the same year. Wedbush says that Volkswagen is also the most likely partner for Apple’s upcoming EV car. Wedbush estimates that the EV market is worth over $5 trillion over the next decade. and that EV penetration will increase from 3% today to 10% globally by 2025.
The estimates are ambitious and whether they prove out remains to be seen but EV is clearly here to stay and deserves at least serious consideration.
We all have a lot to think about in the months to come.
Related: Investors Have Lots to Think About
Disclosure: I do not own any shares in any company mentioned in this column.