Talking Points – August 2020

August 26, 2020 – Tax Rates and Stock Performance

As we get closer to the November election, investor interest is high in what the outcome might mean for financial markets. In fact, our recent election focused video has been one of our most viewed ever.

Today, we look at a new chart focused on tax rates and what stocks historically have done during different tax policies. Notice below that during the 1950’s corporate and individual tax rates were at the highest rates in U.S. history, yet stocks had their strongest returns of any decade. Conversely, in the 2000’s individual rates were the lowest ever and corporate rates near the lows, yet stock returns were actually negative for the decade.

Source: SunTrust IAG

We are not implying that high tax rates are good for stocks and low rates are bad for stocks. We think this chart is a great way for investors to keep an open mind to various possibilities and realize that at any given time there are a huge number of factors effecting financial markets. Elections and their resulting policies are not unimportant, but there are many other factors that are arguably more important.

August 19, 2020 – The Best 100 Days

The S&P 500 recently completed the index’s best 100 trading day period in history……….in the mist of the pandemic. An amazing fact, but now in the past and its relevance on the future is unknown. However, our chart today looks at the returns after the previous ten best 100 trading day periods. It turns out that historically the month after the 100 days stock returns are about average. However, as we zoom out to 250 trading days (about one calendar year), returns were above historical averages and positive 90% of the time.

Source: Strategas Research

As we often say when showing data like this, it should not be used solely to make an investment decision. However, we do think it can be useful for discussions with your clients that have cash on the sidelines and are afraid to invest because “they have already missed the run up in stocks.” That might turn out to be true, but if history proves accurate stock price strength builds momentum and future returns tend to be healthy after some of the strongest return periods ever.

August 12, 2020 – Two Amazing Apple Charts

Apple and many of the other large technology stocks have had an amazing streak of performance. They have grown so large it seems barely a day goes by where we do not see a new chart showing how Apple is larger than some major country, or bigger than some other huge group of companies combined. However, what is less discussed is if the fundamentals justify such amazing statistics.

Our first chart shows one such chart that causes some to think Apple stock has grown too large and like IBM in the 1980’s and other large index weights they have only one way to go from here and that is down.

Source: Strategas

On the other end of the spectrum is this next chart that shows Apple net income exceeds all the net income generated by the 2000 stocks in the Russell 2000 Index.

Source: Strategas

It is highly unlikely that the next fews years performance is as strong as the past few years for Apple. However, that does not necessarily mean the company fundamentals have not justified at least some, if not all of the massive move up in the stock.

August 5, 2020 – Beating Expectations

Reported earnings for stocks have fallen hard this year compared to last year with COVID-19 induced closings and the resulting economic damage. It is never easy to predict what future earnings will be, even in the short-term, but it has been exceptionally challenging during the current environment.

It turns out, analyst expectations for the recently completed quarter were far too negative. Nearly 90% of companies have reported earnings above estimates, which is a record.

Stock markets generally do a good job of looking ahead and quickly factoring in new data. However, even the best attempted estimates will often need to be adjusted as information is updated. Fortunately, for stocks much of that new information is currently coming in better than originally feared.

Source: Greg Towner, CFA, CMT