In the past month, the aggressive growth industries — primarily tech hardware and software, internet, cloud, cybersecurity, and biopharma — saw their stocks rebound and move ahead, dramatically outpacing the rest of the market. The rally from the pandemic bottom was thus rather narrowly based, with technology megacaps responsible for much of the gains.
We now expect the market to begin to broaden, and some cyclicals begin to catch up, particularly some financial and industrial stocks. Tech will continue to do well, and can always correct somewhat, but some stocks while have become grossly oversold will likely begin to show some vitality; again we mention financials in particular: good-quality business development corporations (BDCs), certain areas of the REIT industry, and U.S. banks. Long-term investors should also look at oversold transportation companies and major industrials which supply continuing world demand, as well as some travel and entertainment companies with important brand-name franchises that are very difficult to duplicate, such as Disney [NYSE: DIS]. All of these could do well.
Gold
While as we noted above, we do not believe that U.S. dollar hegemony is in danger, we do believe that current monetary and fiscal programs have increased the likelihood of rising inflation in the medium term. Therefore, as always, we advocate a prudent attention to gold as an important part of a properly diversified portfolio.
Reopening
With all 50 states in some stage of the reopening process, many readers will have noticed a pickup in activity — even in the states such as Michigan, California, and New York which are following a more cautious path towards normalcy. Within those states, there are regional variations; for example, although our own Los Angeles County still remains largely locked down, neighboring Orange and Ventura Counties enjoyed a Memorial Day weekend with largely open shops and restaurants — adapted to current social distancing requirements, which we expect to continue to moderate.
The most recent “best estimates” from the Centers for Disease Control show an overall symptomatic fatality rate for COVID-19 of 0.4%, and a rate of asymptomatic cases of 35%, which taken together, indicate an overall infection fatality rate (IFR) of about 0.26%. (For those under 50, the IFR is less than 0.03%; for those over 65, it’s about 0.85% according to these estimates).
This overall fatality rate is several times higher than a typical seasonal flu (often quoted as <0.10%, more accurately about 0.04%), but, especially for younger people, significantly lower than a dangerous pandemic flu, such as the 1918, 1957, and 1968 flu pandemics.
COVID-19 mortality is heavily skewed towards older demographics. Tragically, in many states, nearly half the coronavirus fatalities have been elderly nursing-home residents, who represent only about 0.6% of the population. Very likely, these data will encourage continued reopening with special attention to protecting the frail, the elderly, and those in institutions.
Thanks for listening; as always, we welcome your calls and questions.
Please note that principals of Guild Investment Management, Inc. (“Guild”) and/or Guild’s clients may at any time own any of the stocks mentioned in this article, and may sell them at any time. In addition, for investment advisory clients of Guild, please check with Guild prior to taking positions in any of the companies mentioned in this article, since Guild may not believe that particular stock is right for the client, either because Guild has already taken a position in that stock for the client or for other reasons.
