“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.”
― Charles MacKay, Extraordinary Popular Delusions and the Madness of Crowds 1841
The third quarter of 2020 is in the books.
Imagine you had consulted an oracle exactly one year ago today, a Seer with a crystal ball. “Tell me about the third quarter of 2020”, you might have asked the Seer.
The Seer would have replied:
“The professional baseball season will start in July, and the fans will be made of cardboard.”
“Golf fans will look forward to the Masters Tournament in November.”
“Cam Newton will replace Tom Brady as quarterback of the New England Patriots.”
“Oh right”, you would reply, wondering what your Seer had been smoking. “And I’ll bet they run the Kentucky Derby on Labor Day”.
The Seer: “Exactly.”
In fact, the only forecast for the third quarter you might have believed this time last year would be your Seer’s forecast for the stock market.
“In the third quarter of 2020, the S&P 500 will be up almost 8%”. Under the circumstances, the market may be the biggest surprise of all.
September was down, but somehow the market still ended up almost 8% for the quarter. Herd mentality? Maybe. Years from now, we will remember the third quarter’s stampedes.
- The Tesla Stampede: Tesla shares (TSLA) opened the quarter already running, after doubling in the second quarter. In July and August, Tesla shares doubled again. Then, following a 5-for-1 stock split, the stampede reversed direction and within days (after Tesla failed to break into the S&P 500), the post-split shares lost one-third of their value.
- The Zoom Stampede: The company that enables people to attend meetings in pajamas, Zoom (ZOOM) doubled in the third quarter. The bulls believe Zoom meetings are the future of group communications; skeptics point out Zoom is trading for 600x trailing earnings and selling a product that competes against Microsoft, Apple, and Cisco.
- The Eastman Kodak Stampede: The move was Instamatic. Kodak’s shares (EK) rose from $3 to $30 in two days. Speculation was fueled by announcement of a $765 million loan to Kodak, enabling the former camera maker to work on Covid-19 medicine. By quarter’s end, the stock had settled from $30 back to around $9.
- The Robinhood Stampede: The Robinhood Financial Services app gave market entry to millions of small investors who had never before purchased stocks. Among Robinhood’s most popular holdings in the third quarter: Tesla, Zoom, and Eastman Kodak.
Comment: Notable in the third quarter were the companies that DIDN’T participate in the most volatile emotional stampedes, including market leaders Apple, Microsoft, Google, Netflix, and Facebook. Those companies posted solid performance and better than expected earnings, but the group seemed to avoid the third quarter’s stampede extremes.
The Fourth Quarter
Given the unpredictable world in 2020, we would be ostentatious to confidently forecast anything about the fourth quarter, other than more cardboard fans at baseball games.
The market’s fourth quarter performance may depend on “Three E’s”: earnings, economy, and the election.
Earnings: Much of the third quarter’s earnings growth occurred in technology and “stay-at-home” companies. Will earnings broaden into other sectors in the fourth quarter?
The Economy: The economy doesn’t equal the stock market and vice versa.
Even so, the markets will be sensitive to consumer spending. Will another round of stimulus be needed before Black Friday? We’re reminded – in these crazy times – of a quote attributed to economist John Kenneth Galbraith: “The function of economic forecasting is to make astrology look respectable.”
The Election – Analysts tell us the market is already looking past the election and predicting a tepid economic recovery in 2021. Maybe so, but if we don’t have a clear presidential winner by, say, inauguration day, all bets are off.
New Fintrust Portfolio: The West End Equity-Income Portfolio
Greenville, South Carolina is home of the West End: a corner of downtown Greenville known for old industry combined with a new spirit of innovation.
During the third quarter, Fintrust Capital Advisors created a new team-managed portfolio built around the same concept of combining old and new. We call it the West End Equity-Income Portfolio. You’ll be hearing more about this portfolio.
The official description:
The West End Equity Income Portfolio is a diversified portfolio that seeks to capture the spirit of stability and innovation by investing in a balanced combination of traditional, successful, sustainable, large capitalization, enduring businesses which generally pay dividends and mid-and large capitalization new growth businesses.
Along the way we’ll be sharing more about the West End Equity Income Portfolio.
As we move into the fourth quarter of a year characterized by surprises, we are reminded of yet another quote from a famous investor, Peter Lynch, who said colorfully about expert forecasters: “…they can’t predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack.”
Comment: We’re just hoping not to see cardboard fans at the Masters.
Watching the Tape is written by
Bill Kibler, Senior Vice President, Financial Advisor – Fintrust Capital Advisors
Will Kibler – Vice President, Financial Advisor – Fintrust Capital Advisors
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