Articles & Updates
Summer Thoughts on a Foggy Economy (July 28, 2020)
The Kaleel Company hosts successful client event (May 28, 2020)
Michael Kaleel Named to Lincoln Financial Securities PREMIER PARTNERS® (May 6, 2020)
The Stock Market, the Economy, and the Virus (April 13,2020)
Our office is staffed during shelter-in-place (March 15,2020)
Update on Market Sell-off (March 10,2020)
The Coronavirus and the Election of 2020 (March 3, 2020)
The Yield Curve, a Recession, and Thoughts about the Future (Oct 2019)
Add Secure Income To Your Life (Apr 2018)
Market Thoughts and Update (Mar 2018)
Summer Thoughts on a Foggy Economy
July 28, 2020
So much has happened since the beginning of 2020. A virus threw the US into a recession with economic growth going from +2.1% in the final quarter of 2019 to -5.1% at the end of the first quarter 2020 (Bureau of Economic Analysis, https://www.bea.gov/news/glance.) Some people might say that this was coming and are not surprised by what has transpired. Sadly, no matter how often the pandemic was predicted, this was not expected. A true Black Swan event.
This pandemic will become a marker for the 21st century and is likely to impact our daily lives for some time to come. Cottage industries of mask making have erupted, and there is no end to mask creativity. On a more serious note, how will the virus impact the economy and the stock market? Will new technologies and industries spring up? While we don’t have a crystal ball, the way we live and work has changed, and some of it will likely become permanent or accepted as normal. I’ve gotten so used to wearing a mask it feels like another piece of clothing.
Stocks don’t seem to care about the virus
Despite the current economic conditions, investors have continued to be buyers in the stock market, ignoring the surging virus in various states. Why is the stock market not reacting to the possibility of shutdowns in major states? The primary reason is that the stock market is a leading indicator and tends to focus on longer-term outcomes, possibly next year or beyond.
Also, the extremely low interest rates (the 10-year US Treasury yields approximately 0.6%) make bonds less attractive. However, bonds are still being purchased by US and foreign investors for stability. Based on what we are hearing, we expect that low interests will be here for a while. With these low rates, investors are incentivized to invest in stocks.
Choppy, choppy for awhile
We believe that the near-term stock market movements will be choppy as second quarter earnings continue to be released over the coming weeks. Forecasts for corporate earnings continue to be negative for the remainder of the year and recovering in 2021. The second quarter may show more bankruptcies, and in fact, the five largest banks in the US announced last week their plans to set aside $35 billion to prepare for what could be a wave of future defaults – mortgages, credit cards, personal loans, auto loans and corporate bankruptcies (source: CNN https://www.cnn.com/2020/04/17/business/bank-earnings-defaults-recession/index.html). This is a clear indication that the banks are in protection mode and are preparing for a worse case. If this comes to pass, the banks are ready, and if it’s not as bad as they predict, the banks will be likely to show improved earnings and strength.
Getting back into the workforce and businesses to get another bump
The re-hiring of the unemployed and furloughed, along with the ability of businesses to re-open, will be critical to the shape of the economic recovery. It took 10 years for the employment level to grow from a low of 129.7 million in February 2010 to the high of 152.5 million in February 2020. Then in only two months, we lost over 22 million jobs. The bright side is that in the last two months, employment has improved. Rehiring was evident in the data. The number of employed people grew from April’s low of 130.3 million to 133.0 million in May and in June to 134.8 million (source: https://fred.stlouisfed.org/series/PAYEMS).
The new stimulus package should be coming soon as Republicans are close to releasing their proposal. Then both parties will have to come to an agreement. Reports indicate that there will be another check of $1,200 to individuals, although the income level may be different from the first stimulus check. The coming stimulus is likely to extend unemployment benefit enhancement as the $600 per week benefit will expire on July 25th in most states. The clock is ticking as the summer recess for house and Senate is August 7th.
While we are headed in the right direction and while no one knows for certain, this recovery may take a year or longer to return to those previous levels of employment.
Work from the beach
Will this virus be stopped? Yes, we believe (although we are not scientists) that the virus will be quelled eventually (maybe in early 2021) through a vaccine and/or therapies to heal and reduce mortality. Masks may be here to stay for the time being. Today, there is no truer statement than Plato’s famous words: “necessity is the mother of invention.” New ways of working and getting healthcare are evolving such as Zoom meetings and having a doctor visit via telemedicine. Technologies are being created to help us adapt to a world where we can transition easily to and from remote work environments as needed. New safety protocols such as plexiglass shields, floor decals, seat protectors, and office dividers are being produced to help businesses get back to work safely. And, for those who want to be on vacation without leaving the office, the dream of working from the beach is no longer just a dream.
The coming months
Stock performance is likely to be uneven, and all boats may not rise with the tide, i.e. certain sectors may do better than others. Recently, we saw busy shoppers at certain home goods and hardware stores so it’s not surprising to see that year to date, home improvement stocks have advanced 20X more than S&P 500. However, since no one is going anywhere or not heading out to eat, airlines and restaurants are down significantly more than the broad market. Now, more businesses are re-opening. June retail sales were up 7.5% (https://www.census.gov/retail/marts/www/marts_current.pdf). This, however, may be short lived in some geographies as the virus surge has resulted in some bar and restaurant closings, the Texas capital, Austin, is one notable example. To add to the excitement, there is an election in November which is going to be here before we blink. This may add to a shaky period as the market digests the impact of the election.
At this point, we believe that the future will bring new investment opportunities. Innovation in technology and health care are creating new products and services to make our lives better. The merger and acquisition and IPO’s have started to resurface. Like any investment, time is needed, and an investment time horizon of 3-5 years is reasonable.
We would love to hear your comments and questions.
Stay safe and buy a fancy new mask.
Best regards,
Laura Alspaugh
Michael Kaleel
LFS-3176458-072420
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The Kaleel Company hosts successful client event
May 28, 2020
On May 21, 2020, The Kaleel Company, Inc hosted its first client webinar event using Zoom. We had as a guest speaker Serena Perin Vinton, the lead manager of the $15.5 billion Franklin Growth Fund. Serena Perin Vinton is one of the most successful money managers in the industry. The format followed a question and answer discussion between Michael Kaleel and Serena with some questions submitted by attendees in advance. It was an interesting and informative dialogue which covered topics such as her opinions on the state of the market, how she picks stocks to buy and sell, as well as what she sees as global issues that should be addressed. The webinar was primarily for the benefit of the clients of The Kaleel Company, Inc. Selected friends of the firm were also invited. The feedback received has been overwhelmingly positive. We are pleased by the success of this webinar and look forward to hosting more in the future.
LFS‐3104393‐052820
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Michael Kaleel Named to Lincoln Financial Securities PREMIER PARTNERS®
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