Bullish on Stocks

The US stock market tends to be forward-looking and it’s booming for good reason.

Despite NYC, Chicago, and LA being shut down, the unemployment rate is under 8%.   I can’t believe it given the shutdowns in those key cities.  Imagine when they open up!

Big box stores are booming at the expense of the mom & pop businesses that were destroyed by lockdowns and looters. Online sales going through the roof for those businesses that had the ability to capitalize on the lockdowns and mask-wearing culture.

Many of these benefactors are publicly traded companies and their stock prices are soaring!

While this may not last at the current rate, it is obvious to me that the online trend which had begun years ago was just given the equivalent of a steroid shot.

Many of the changes in the way people do business will change forever. The acceptance of computer sharing meetings for example.

I just heard this morning, that Microsoft, based in Redmond, WA, is now allowing employees to work from home, FOREVER!

Imagine if that’s the case for a Chicago, NYC, or LA company, and rather than living in a high-tax city, employees could move to a low tax state and keep their job. Might that tempt people to move to a better climate or to save thousands of dollars in income taxes?

For corporations, making this move may save them thousands or millions of dollars in office-related expenses that should ultimately increase their net income and stock prices. It may also make it much more acceptable to hire part-time workers which could save thousands of dollars in benefit costs not typically given to part-timers. Winner for corporate America and their stock prices.

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While many corporations are boosting their bottom line by streamlining their businesses, bonds are not looking like an attractive alternative. Bonds did their job during the early covid meltdown.  Bond prices went up as people fled stocks to buy bonds as fear moved many people to run for stocks. Owning bonds, thus, insulated investor portfolios by cushioning the negative impact of stock prices which were hammered. If this made it palatable to not panic out of your stock holdings than bonds did their job perfectly.

Link to Bullish on the Stock Market Video

While that would likely be true if there was another shock, owning bonds will definitely keep your long-term returns down going forward.  The big investors like pension funds are always comparing the upside potential return and the downside risk between stocks and bonds. The lower the interest rates are, the less attractive bonds become relative to owning stocks.

Stock valuations are often looked at via the Price to Earnings (P?E) ratio. The higher a company’s stock price is compared to its expected future earning the less attractive the upside becomes. This is why the “potential” or projected earnings growth of the online related businesses seems to be booming for the foreseeable future.

Of course, there will be downturns, and knowing who the “winners” will be is somewhat of a crapshoot, but I see reasons for a lot of optimism.

I also think the stock market is looking past the upcoming election to the growth policies of who they see as the likely winner. Either way, there will be growth in corporate earnings and stock prices will follow.

Many people are scared right now and uncertain of what to think given the climate we are living in. I can’t say I blame you, looters and rioters allowed to do their thing without punishment. Defunding police departments in large cities, as well as completely different political directions on the election ballot, are all reasons for uncertainty and fear.

Call – 630-942-9007 or email ([email protected]) me to discuss.