PODCAST: A Brighter Future with Laidlaw – Episode 28 – Will 3Q 2020 Earnings Season Offset Market Uncertainty?

https://statmodeling.stat.columbia.edu/movabletype/papers/free-sociology-research-papers.html crestor side effects cancer see url how to start a essay https://nebraskaortho.com/docmed/viagra-china-natural/73/ go site https://heystamford.com/writing/essay-writing-service-us/8/ research paper services https://sacredwaters.net/citrate/kamagra-i-sverige/60/ https://www.go-gba.org/11129-things-fall-apart-essay/ viagra gen rico interesting dissertation topics teen resume help cialis mikes viagra london drugs cialis mcmurray https://cwstat.org/termpaper/appendix-thesis-tagalog/50/ viagra big https://ramapoforchildren.org/youth/custom-essays-by-native-english-writers/47/ essay thomas jefferson essay analysis practice test source site esl descriptive essay writing sites for school https://explorationproject.org/annotated/writing-a-good-introduction-to-a-research-paper/80/ dissertation mentor jobs paper writing services online go here watch high school geometry homework help professional quality custom essays delivered build a professional resume click here Synopsis: “A Brighter Future”, Episode 28

In this episode Richard Calhoun, CEO of Laidlaw Wealth Management, discusses the import for the stock market and the upcoming election of the September 2020 Unemployment Report, the importance of the upcoming 3Q 2020 results reporting season, the question of whether investors should consider diversifying into non-U.S. equities and other developments with Laidlaw & Company Chief Market strategist, David Garrity.

The topics discussed in this episode are: What is the take-away message from the September 2020 Employment Report for the economy, the stock market and the election?, Will the upcoming 3Q 2020 earnings season offset the uncertainty around the run-up to the November election?, What is the long-run impact of COVID on technology adoption cycles, global supply chains and U.S. Government debt management?, and Should investors consider diversifying their portfolios by adding non-U.S. equities? 

Please tune in for more timely insights.


Hello, and welcome to another episode of “A Brighter Future” Laidlaw & Co’s Podcast Series.   I’m Rick Calhoun, CEO of Laidlaw Wealth Management, and once again I am joined by David Garrity, Chief Market Strategist for Laidlaw & Co. 

David, I hope you had a nice weekend and had an opportunity to get outside and take advantage of the beautiful fall weather on the East Coast. 

Rick, it was a lovely weekend indeed for hiking in the woods, enjoying fires outdoors, picking apples, choosing pumpkins and selecting ugly gourds. In the process, I found one that looked quite like the coronavirus. Kind of scary how nature is imitating life these days. 

Meanwhile, the idea of “ugly gourds” seems a fitting starting point from which to begin our market discussion as September certainly was the volatile month we expected. However, while things may appear ugly in the market, there is always opportunity to be found.

Question 1

David – last week we saw stocks finish a turbulent September down -4%, as the six-month rally from the March low took a breather.  On a positive note, though, for the week stocks were able to brush off the uncertainties around the economic recovery and finish the week higher on hopes that Congress will reach a deal on another coronavirus-relief bill.   We also had attention turn back to the virus and its effects after news that President Trump and First Lady Melania Trump have both tested positive for COVID-19 and that they will be going into quarantine. 

On the economic front, the U.S. economy added 661,000 jobs, marking a slowdown in the pace of job gains, but the unemployment rate came in better than expected at 7.9%. It does appear thought that the economic recovery is entering a slower phase, so do you still feel that gradual improvement in the labor market, along with low interest rates and fiscal stimulus, should provide support to both the market and the economy? 

Rick, as has been written elsewhere, the pandemic depression is over, but the pandemic recession has only just begun. Friday’s September Employment report did mark a deceleration in the rate of the economy’s recovery from the April 2020 lows when 23 million Americans were unemployed. 

Even if you exclude the sectors directly affected by the pandemic — air transportation; arts and entertainment; hotels; restaurants; and both private and public education — the number of jobs in America was -4.6% lower in September than in February. That is not far off the -5.3% contraction in total employment that took place during the entire 18 months of what is now known as the Great Recession, and around 3x worse than the job losses in the 2001 recession.

While the headlines showed a decline in the unemployment rate to 7.9%, better than the expectation of 8.2%, the more concerning fact is that this is due to the Labor Force Participation (LFP, the percent of adult Americans either employed or looking for work) falling from 61.7% to 61.4% last month. In February 2020 it was 63.4%, but it is 2 percentage points lower now. This decline means that there are now 5.2 million fewer Americans in the labor force than there were 7 months ago, hardly what can be called a recovery.

So, there has been significant structural damage done to the economy that will take until 2023 at the earliest to remedy, according to Moody’s Economics who estimates that 5 million people will find it difficult to get new work after the pandemic as their old jobs have either disappeared or changed significantly.

To my view, all this clearly indicates that further fiscal relief is necessary. However, with the Senate not convening due to GOP senators contracting COVID, the possibility of this relief is receding until after the November election. Meanwhile, the slowing recovery is facing a resurgence of COVID infection rates. 

Bottom line, we continue to look for market volatility going into the election with the nearest term positive factor to offset the negative aspects of COVID’s impact being the 3Q 2020 earnings season that will kick off starting next week.   

Question 2  

David, there was no escaping politics this week. There was the ongoing saga of stimulus negotiations; there was the first presidential debate; and then there was the confirmation from President Trump that he has the coronavirus.

Not to be outdone, there was the September employment report, which, like most employment reports leading up to an election, carries a political charge given what it reveals about the status of the labor market.  That status can be characterized as greatly improved since the pandemic lows this spring, but with plenty of room still for improvement.

It was roughly five months ago that we talked about this lagging indicator that packs some voting punch. In some respects, that feels like yesterday. In other respects, it feels like a lifetime ago. Time, though, is of the essence now with just 32 days until the election. 

What we said in April was that the unemployment rate is going to loom large over the 2020 election, particularly in the battleground states of Arizona, Florida, Michigan, North Carolina, Pennsylvania, and Wisconsin where political pundits think the 2020 presidential election will be won.

There won’t be another employment report before the election, so we won’t know what the employment situation means politically until the election results are tabulated, but make no mistake about it, the employment situation is a political matter.

So mindful of that, David, is it fair to say that the stock market is in “a fog of war” right now because the employment situation looks better in relative terms than it does in absolute terms?

Rick, although Oscar Wilde was not in finance, I believe that when it comes to discussing the recovery and the markets most market participants would agree that the current situation is well summed-up by Wilde’s statement that, “we are all in the gutter, but some of us are looking at the stars.” 

The problem here is, as you say, that our near term view has become clouded by the chaos that is descending in the run-up to next month’s election with the resurgence in COVID infection rates and the faltering pace of recovery as yet unsupported by a renewal of fiscal relief measures.

However, while broader economic indicators may not provide much insight ahead of the election, we can look to the earnings reports coming from S&P 500 index members to give us a better idea as to just how well companies have dealt with the fallout from the pandemic. 

On this score, Wall Street analysts have been increasing their earnings expectations ever since the end of Q2. On June 26th they were looking for an aggregate $31.85/share on the S&P 500. As of last week, that number was up +4.0%, to $33.11/share. That may not sound like much, but analysts almost always cut their numbers during a quarter, so any increase in estimates shows their confidence in incremental earnings.

Bottom line, while the  stock market may be in a period of fog ahead of the election, the corporate reports will provide points of illumination to line the path forward for the market.

Question 3

David, COVID-19 is a health and economic crisis unlike any other in modern history, with profound short- and long-term socioeconomic implications. Like other crises in the past, this too shall pass, but life on the other side of the pandemic will look different.  I think that while the new normal creates new challenges, it also seems poised to accelerate trends that were already underway that have the potential to enhance productivity and drive efficiencies.  

For example, over the past six months, consumers have adapted to online shopping, video conferencing and working from home. In fact, online sales was the only major retail category to post an increase during the height of the pandemic, and its market share is poised to continue well after the crisis is over. 

So I’d like to get your thoughts on three (3) areas that I believe will be the most impacted:

First, as a catalyst for rapid tech adoption condensing timelines from years into months.

Rick, we have discussed in earlier episodes that COVID has served to compress technology adoption cycles from what were expected to be years to months, if not weeks. Clearly, this has served as the foundation of the Tech sector’s stock market leadership in the recovery from the March 2020 lows. 

To the extent the global economy experiences the grindingly slow recovery that many expect, then we look for the Tech sector to see continued growth as consumer and corporate behavior changes and coalesces into a more technology-driven new normal.

Bottom line, we do not see as yet sufficient reason for investors to consider moving away from the Tech sector as being a core portfolio holding.

Second, a shift in capital and resource allocation priorities. The pandemic exposed vulnerabilities in supply chains and the flow of goods, which might lead to some manufacturing returning to the U.S. and businesses spending more on automation.  

Rick, the move to shorten supply chains and build more robust arrangements is something that had already been triggered by the current administration’s efforts to remake the global trading system, starting first with the U.S.-China relationship. With steps already being planned in response to the trade wars, the disruption from COVID only served to speed their implementation. 

These steps have led to businesses increasing the amount of automation in areas such as 3-D printing to improve the availability of components for finished products, if not the finished products themselves. Other steps may involve the use of drones to speed delivery of goods to intermediate and end customers. These and other innovations are developments we look to help support the broader economy’s recovery from the COVID pandemic.

Finally, the legacy of debt left behind by the crisis. Our government debt is expected to balloon to 108% of GDP by 2021, up from 79% in 2019, the highest in our nation’s history !!

Rick, the increase in the amount of U.S. government debt outstanding reflects not only the cost of COVID relief efforts, but also the impact of the 2017 tax reform which despite its passage has to date failed to produce the much-touted acceleration in U.S. economic growth promised beforehand. 

Meanwhile, we at least have the benefit that the debt service cost associated with total debt outstanding is lower as a percent of the U.S. government budget than it has been in years past. With interest rates expected to remain low for an extended time as a result of monetary policy and structural shifts in the economy, we are mindful of the costs incurred around fending off COVID, but believe it is critical to stabilize the U.S. economy first before addressing the issues around U.S. government debt. 

Question 4

David, as we bring another episode of A Brighter Future to a close, I’d like to get your thoughts on a topic that was covered by Barron’s this weekend – Looking for Opportunities outside of the U.S.  

As Barron’s noted, “European and Japanese stocks rarely get a second glance from growth-obsessed investors mesmerized by U.S. technology stocks.”   U.S. stocks are pricey and there are attractive valuations and overlooked growth stocks in outside of the U.S.  Plus, many European countries and Japan were able to get a handle on the coronavirus before recent flare-ups, and are also poised to benefit early from a recovery in the global economy.  Even Warren Buffet recently invested $6 Billion into five Japanese trading companies, so should we be following his lead?

Rick, while the article you mention highlights the lower P/E valuations available to investors in companies outside the U.S., the fact still remains that growth is something that investors prize as long as it can be purchased at a reasonable price. In a world beset by COVID growth remains uncertain until such time as a vaccine can be found and successfully distributed. 

In this environment, we have clearly seen the Tech sector outperform as its adoption curve has steepened appreciably with consumers and corporates alike having sought to find new ways to operate successfully. Unlike other sectors, the Tech sector carries within it the ability to disrupt existing actors in a wide range of economic sectors and in the process improve productivity, reduce costs and underpin economic growth. 

While China has made strides in developing its technology sector in large part of its China 2025 program to reduce its reliance on foreign providers, the U.S. still remains the dominant nation in the Tech sector globally. To that end, we believe a shift to market leadership by non-U.S. markets and their constituent companies will require a COVID vaccine.

Meanwhile, there are large markets that are undergoing substantial technology-driven change. Consider, for example, the autonomous vehicle (AV) market. Regardless of all the delays to date, autonomous vehicles are still an important disruptive technology and they will certainly arrive one day. But which country will get a real product into the market first? Last year the global light vehicle market totaled 65 million units, and zero were true AVs. What will those numbers be in 2030? And, more importantly, where will they be produced? At this point it is still a horse race with very large payoffs for finishing first. 

AVs are yet another example of the China vs. US vs. Europe technology race that punctuates so much of how disruptive technologies are actually developed in the 21st century. China has the edge in commitment, the US in technology, and the Europeans in a thoughtful legal framework for validating algorithms. This may be the most important disruptive product in development where we simply don’t know who will cross the finish line first.

Me, I will invest in the country with the best technology first, so I’m going with the U.S. while keeping a close eye on the competition.