Talking Points – September 2020

September 30, 2020 – What To Do With All That Cash?

With interest rates so low, many individuals that have been less harmed by the economic fallout from the pandemic have wondered what to do with their cash holdings. Apparently large corporations are wondering the same thing.

Below, we see the recent surge in cash for the S&P 500. Companies appear to be saving cash with the unknowns of how and when this crisis will end.

We would expect cash use to pick up in the quarters ahead for share buybacks and dividends. We would also hope that they are reinvesting back in their business for future growth. For better or worse, at this point the crisis appears to be furthering the trend of the very large corporations dominating the small.

September 9, 2020 – Does Government Debt Matter To Stocks?

With the massive amount of government spending this year it is becoming more common to hear concerns about what the size of the deficit and debt levels could mean for stocks. This question has been around for many years in different forms.

Today, we look more specifically at what large cap stocks have done during periods when the U.S. government was running a budget deficit (small cap stocks performed similar). Going back to 1930, stocks actually performed best under periods with a large deficit.

Source: Strategas Research

We aren’t sure this means more debt will always mean higher stocks. The arguments for why debt levels will someday matter may very well prove true. It might be better to categorize this study with stocks weak relationship to both economic data and which political party is in charge. There are so many factors affecting financial markets at any one time, it can be difficult to know which is most relevant. For us, the most relevant come back to owning high quality businesses for the long term with a risk management overlay.

Source: Greg Towner, CFA, CMT