American markets today, Wednesday, viewed several hours before the 9:30 a.m. EST opening bell, appear poised to start mixed with the NASDAQ firmly in the green while the S&P 500 and DOW are in the red. However, the S&P 500 is climbing in the pre-market hours and could make it into positive territory before or after market opening. The DOW is also struggling to move out of the red at time of writing and while turning positive is not assured, it is possible.
Canadian market indicators are edging downwards at time of writing.
European markets are open at time of writing and major indicators there are all firmly in the red.
Amongst precious metals the safe havens of gold and silver are both up.
Amongst currencies, the Euro, British pound sterling and Canadian dollar are all up against the American greenback.
Today and tomorrow are red-letter days for those looking for another view of where we have been in the pandemic and where we might be going, Federal Reserve Bank Chair Jerome Powell testifies in Washington and has the unenviable task of convincing lawmakers of the necessity of sticking with the easy money policies. He needs to convince them of the necessity of continuing until he sees what he terms ‘substantial further progress’ in the Fed’s job and inflation goals. Lawmakers, analysts and investors will all be awaiting Powell’ comments.
Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. report second quarter results today. Investors will want updates on areas such as consumer and business loans since the recovery started and projections about the next quarter. Morgan Stanley reports tomorrow and will likely provide a clear view of recent mergers and acquisitions, wealth management and investment banking activities and a forecast for the remainder of 2021.
In the travel sector, Delta Air Lines Inc. reports second quarter results today with positives including improved demand and negatives including rising oil prices.
As the smoke clears from the pandemic, some new decisions may have to be made about lifestyles, workstyles and investment styles. Every investor and every situation is different and many portfolios may not need any specific adjustment.
The outlook for equities is still positive, according to Jay Nash, Senior Vice President and Portfolio Manager at National Bank Financial in London Ontario. That has not changed. Nash says that the continued positive markets do not mean that investors should ramp up their risk levels but should consider (or keep) large cap American equities. “The tide is rising, but there will still be rough wavy days,” he says. “For this reason, I continue to favor some of the largest cap American equities. If the economy continues to expand, and current trends persist, it’s hard to envision a scenario where Amazon, Apple and Microsoft don’t benefit.”
These three companies ---the three largest components of the S&P 500 together represent 15% of the entire index and can certainly be bought through a large number of mutual funds and exchange traded funds.
However, investors do not necessarily need to own the entire index, Nash explains. “These are worth owning directly as there is a reasonable probability that they will never need to be sold. Investors can ‘trade around’ them -- adding and trimming based on the trading price as a multiple of earnings”
All three companies have historically strong management, diversified businesses, and exceptional cash flow, three characteristics making them suitable for long term holds.
They have other characteristics in common, Nash says. Apple and Microsoft fall under the “technology” sector of the S&P 500 while Amazon is “consumer cyclical”, but all dominate what would be considered the “high growth” segments of the market and are leaders in their fields.
And while looking for a company with the ‘next big thing’ that eventually gets bought out appears appealing, this may not be the best time for that approach, Nash says. “While it’s nice to own the company that gets bought, there are far too many who will try and launch a technology and then fail due to lack of funding. For Amazon, Apple and Microsoft financial strength isn’t an issue.”
In future editions I will continue look at other investment issues to consider as the smoke clears.
Al Emid is a financial journalist broadcaster and author. His next book. The 2022 Emid Report on Volatility is scheduled for a Winter release.