A Comment -- General Comments From an Expert (A Commentary)

Big tech stocks are overbought, but other sectors have started to rise, sectors that have been dormant, so this is a good sign. This buying is driven by FOMO, though the economic realities don't line up stock prices. Stimulus has also encouraged buying, but economic data looks encouraging. He's looking for companies that can grow earnings in a period like this. Home improvement and recreation (i.e. skidoos) have been higher than in years.

He doesn't believe much change in society, but accelerated existing trends like poor demand at shopping malls and more buying online, as well as video--conferencing impacted travel and the office market. There's already diversification of production away from China, like in Vietnam and Mexico, the latter seeing a shift of production to the western hemisphere. China is also less competitive in terms of quality, not just costs.

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The economy has dug itself in a hole and we then filled it with too much money. Now there is nowhere for the money to go. Interest rates are so low, do you use the bond market? The scale of the money looking for somewhere to go is driving the market.

Apple. They sold Apple last week. Over the last 6 months, nothing has changed internally. However, the multiple has expanded sharply. It's close to 40 times current earnings now.

Going back to 2012, the Fed has always been concerned with their inflation target. In the 60s, there was runaway inflation that they have worked to stabilize. Now that it is stable, they want inflation higher to inflate away the debt issue. The US government will owe 30 trillion next year. Because of low interest rates, it is manageable. However, if inflation goes up, they will need to buy more bonds.

US Elections The RNC did a good job to present Trump as a worthy candidate. We will probably see the polls close in in the next couple of weeks. The swing states are the only ones to watch closely. The markets will be paying more and more attention to this in the coming weeks.

Educational segment. There are a couple big index changes and stock splits coming up on Monday. On July 30th, Apple announced a 4-to-1 split. Since announcing the split, the stock has taken off and is now more expensive than before the launch of the first iPhone based on PE. With the split, their influence on the index will be 75% less. In response, the Dow has replaced some industry stocks with tech. Tesla might also be included in the S&P500 soon. There are many changes coming from the indices to watch for.

A handful of US stocks accounts for half the entire market. It's a fairly narrow market. He's not a market timer. Take the ups and downs of the market without losing much sleep. A barbell approach is working quite well. On one end, large, mega cap momentum names like Apple and Facebook. On the other side, banks and industrials that are a value play as a hedge.

Could it become a self-reinforcing selloff if the momentum names turn over? J Powell this morning gave a green light for the Fed to support risk assets. We'll see a fairly long re-rating of companies to higher levels. We will have periods of corrections, but a March-type event is off the table. The markets are on fairly good footing and feeling the love and support from the Fed.

Depression in the cards? Never say never. Take a reasonable base case and don't look at the tail risks as likely events. You can worry yourself about things that don't have a high likelihood of occurring. He uses a balanced technique, so there's some hedging going on at all times to try to smooth the ride.

Implications of continued low interest rates for US banks? Shows support for assets to be re-rated to higher prices, as there's that floor on them. The Fed backing a good economy. Economic strength trumps the interest rate issue, and banks do well during good economic times.

Are share buybacks just artificial engineering to prop up the stock price? Whenever a company comes out with a bold change to capital allocation, such as a buyback or dividend increase, his first question is whether it's a red flag. Do they not have any good ideas for what to do with their money? A skeptical view is warranted.

US market hitting records day after day touching unreality? S&P is up over 55% since the low. Economic numbers continue to surprise. Housing numbers, consumers, and dovish monetary policy are helping. Risks remain. Possible resurgence of Covid, escalating US-China tensions. Possibility of disputed US election. In 2000 when this happened, the S&P fell 6.5%. Only 45% of the S&P index consituents are in positive territory YTD. The relative strength index is at overbought levels.