With every crisis comes opportunity. Watch Eugene’s video on the rapidly changing dynamics within the stock markets and how we are positioning portfolios to benefit. Brought to you by our recurring stock portfolio rebalance updates dedicated to the informed long-term investor.
US equities overview and updates
Overall, the market is dominated by Covid-19 right now, however we understand the need to be selective. Remaining especially selective with companies that have strong fundamentals. In other words, companies that have the best probability of survivorship through recession. With this, we utilize the barbell approach, buying a solid composition of value firms, and off setting that with growth stocks into the portfolio.
We are in a self-imposed recession, but in the long run we can see flexible American businesses reigning on top as we shift back to a healthy economy.
Valuation spreads and our multi-factor macro economic forecast
Next, let’s look at the valuation spreads from the video commentary. This identifies the differences between the cheapest stocks and most expensive stock prices. The difference reached in March, reached 3 standard deviations above the normal conditions. This is a clear indication of extreme times but is also sheds light on opportunities as the economy establishes normalcy in the long run.
Furthermore, small caps have retreated versus large cap annual returns. We are seeing how the large caps have remained dominated within this time period as they are more immune to current economic recession.
Moving on, when we observe our multi-factor macro economic forecast, we see that communication services, consumer staples, industrials, IT, and material sectors rank positively. On the other hand, we see consumer discretionary at the neutral range and sectors like energy, financials, real estate, healthcare and utilities remain negative ratings.
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