The economy has come back in a K shaped as opposed to the V shape as imagined by the previous administration. K means that some people have gain and others have lost, but there is hope for a V shaped economy. If you consider the sectors which have not gained they included tourism, hospitality, recreation, or things people did after they earned money. The base of the economy allows the local and regional economy to function, but when people gathered for any and all events, that has been missing from our countries.
The Biden administration passed a $1.9 trillion dollar stimulus package, but unlike the Trump’s tax cuts which over 80% of the gains went to corporations and the 1%, the gains are for people making less than $120,000 a year means over 65% of the stimulus is aimed at them. This includes a lot of people and as vaccines roll out, this means money will be spent on something beyond food and rent. The child tax credit will help children and hopefully this means a less dependence of school lunches. The money can be and will be helpful to a lot of people. That is good news, but as investors what does it mean to you and how can you begin to capture gains in the stock market?
For most of us, our portfolios are not big enough to need to take advantage of every shift in the stock market, but to have reasonable returns, some portfolio management needs to be done. The first aspect is to examine your portfolio to see if it is too exposed to stocks which have benefited from the pandemic? You may not have capture all the gains, but some of your investments should have captured some of the gains.
In an article by Tim Shufelt, he wrote the market is beginning to favor value over growth stocks and pro-cyclical sectors over defensive sectors. Mark Haefele, chief investment officer of UBS Global Wealth Management said in a recent report, we recommend investors tilt their stock exposure to sectors that are likely to benefit from higher growth.
It is about earnings, the market is saying we are going to get a massive year over year rebound in earnings.
Globally, corporate profits in cyclical sectors, including energy, materials, financials and industrials are extended to rise by roughly 100% this year compared to last year, compared with last year, according to Bloomberg data. (the stimulus bill has helped and will continue to help ensure bank loan losses are lower than expected).
If you thinking of selling some, but not all tech, the reason is the tech sector has lost earning power – its profits are expected to rise about 40% this year, however you can get the same or better earnings growth elsewhere at lower valuations
In many reports, the average consumer which has benefited from the K economy is setting on a cash pile, because they had forced savings. They are likely to spend some of it. The chief economist at Jefferies Aneta Markowska top companies which they believe will benefit include: Airbnb, Southwest Airlines, Lyft, Home Depot, and Lowe’s.
Linking to dividend paying stocks, if you own them, getting in at the bottom to sell at the high is not the prime objective. It is wonderful when the stock prices rise, but the main reason to own is to gain the dividend. Now if the stock prices rise and the holding because too big in your portfolio it is time to consider portfolio management and capture the capital gains and look at alternatives. The most important aspect is you have time on your side.
There are more questions than answers, till the next time – to raising questions.