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Wow, what a week!

| November 09, 2020

We would like to pat ourselves on the back for singlehandedly getting out the vote message...  Ok, just kidding but nearly 150 million people voted in this election, the most ever! This level of participation and engagement is encouraging.

Post the election, it looks like we will have a new President and the market has its opinion. So far, that opinion is that the market likes what the election produced. More specifically, it appears to like some amount of gridlock, where no single party can do too much without checks and balances. As one of our favorite commentators said, the results seemed in aggregate to point to a desire for “peace and quiet” amongst the US electorate. Toned down rhetoric and a limit on wild swings in either direction policy-wise. Markets like peace and quiet and reacted accordingly – with most indices up 5-10% last week (and higher today). Many people may not agree with the market, but it appears to be the verdict.  How about some charts to show you what I mean? The next two are the S&P 500. The first one is market-weighted and the second is equal-weighted. As you know, we think that equal-weight is the better representation of a healthy market.


Yes, these charts look similar, but you can see the equal-weight has finally broken out of the long trading range that it’s been in. Again, this represents broad participation rather than the big five stocks doing all the work (and then some).

Let’s take a look at the small cap stocks as well.


Huge breakout. Let’s see if the longer-term charts confirm the breakout…


Yep, looks good. So we’re good to go, right? Travel, leisure, restaurants, movie theaters will all be open soon. Well, maybe let’s not get too far ahead of ourselves. But wait, there’s more!


Today, Pfizer, together with its research partner, said their early studies show a 90% effectiveness for their COVID-19 vaccine. Again, great news, that will surely allow some people to engage in activities they had been reluctant to do before – though this won’t happen overnight.

The ‘stay at home’ stocks are getting hit on the news and companies like Zoom, Peloton, Amazon and Netflix are down significantly.  Does that mean they won’t continue to grow? Not necessarily. Will their growth be slowed to some degree as there will be new business opening and taking some of their growth away? Absolutely. At the valuations of some of these companies, they were priced as if there would never be an opening again.

Zoom video trading at 104x revenue (yes, revenue…not earnings), DocuSign trading at 38x revenue, and Peloton trading at 20x revenues – and that’s after the pullback from their recent highs. As always, it does matter what you pay for things. At 104x revenue, Zoom will have to compound at a VERY high rate for a VERY long time to justify that stock price. As great of a product as it might be, this seems like a tough endeavor. Then again, what do I know, maybe trees do grow to the sky?

Finally, US payrolls gained 638,000 in October. Continued good progress, but more importantly 15.1 million people reported that they were unable to work because their employer closed or lost business due to the pandemic, DOWN FROM 19.4 million in September. Those numbers are still too high, but clearly trending in the right direction. Across the board, ‘marginally attached’ workers decreased by over 2 million, people out of the workforce that currently want a job decreased by 539,000 – and all this when the labor participation rate actually ticked up from 61.4% to 61.7%.

Is it any surprise that the markets were up 5-10% (depending on the index) during the last week?  Today, it is a complete reversal of most of the trades since March, so stay tuned.

As always, we welcome your comments and questions. In the meantime, we’ll continue to test our assumptions, dig into our research, and lean into our model as we seek to be ever mindful of risk while pursuing long-term returns for your portfolio.