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Strategic Insights

Volume 9, Edition 15 | April 27 - May 1, 2020

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Invest Like a Vulcan

Doug_Walters Doug Walters | Articles

Read Time: 2:30 min


Small-Cap stocks are showing signs of life in recent weeks, which makes it an excellent time to remind investors to think long-term and prosper.

Contributed by Doug Walters , Max Berkovich , ,

U.S. stocks ended the week flat after 3% declines on Friday. Small-Cap stocks fared better, posting 3% gains on the week. As we discussed in our recent webinar, Small-Cap as well as Value, stocks have had a tough stretch, underperforming significantly in the first quarter. This rough patch has caused many to question whether they should own Small-Cap stocks in their portfolios.

It would have been easy after the first quarter to get frustrated and jettison Small-Cap stocks. But that would be a decision based on emotion, not fact. At times like these (and all times for that matter), investors need to think more like Spock (logical) than Captain Kirk (emotional). Historical evidence shows us that over the long-term, exposure to smaller stocks has been a significant benefit to a diversified portfolio. As such, the rational “Vulcan” response to recent underperformance is not to flee, but rather to ensure your portfolio has a healthy Small-Cap allocation.

Is the outperformance of Small-Cap this week a sign of things to come? Nobody knows. Our approach to investing relies on science, not speculation. We do not try to predict the future; we prepare for it by ensuring client portfolios have a healthy long-term exposure to rewarded factors. Our advice to investors, “invest long-term and prosper.”


Headlines This Week

Earnings Update 

  • About 55% of the S&P 500 companies have reported their first-quarter earnings. 
  • More than half of the companies that reported have beat their sales and earnings per share (EPS) estimates. 
  • Thus far, the overall earnings for the S&P 500 index have declined about 13.7%.
  • Many companies are still reluctant to provide guidance for the rest of the year.
  • On a positive note, investors cheered after mega-companies like Microsoft (MSFT), Amazon (AMZN), Apple (AAPL), Alphabet (GOOG), and Facebook (FB) showed that they managed very well through a tough environment. 

Operation Warp Speed 

  • The President announced “Operation Warp Speed,” designed to bring private pharmaceutical companies, military, and government agencies together with one goal in mind—to deliver 300 million doses of vaccine by January 2021. “Make it so number one!”

 Central Banking

  • The U.S. Fed kept overnight lending rates at zero while pledging to stimulate the economy until employment has fully recovered. Fed Chairman, Jerome Powell, said on Wednesday that “It may well be the case that the economy will need more support from all of us if the recovery is to be a robust one…” 
  • The European Central Bank (ECB) stated that emergency bond-buying would continue. The central bank is estimating that the European region’s economy could shrink up to 12% and may only recover half of GDP losses.   

The Week Ahead

The Unemployment Picture

Thursday weekly unemployment claims again will be important.

  •  While some states are hit harder than others, there are still concerns that data is lagging the actual picture. In particular, Florida has had technology issues with unemployment filings.
  • Investors will be hoping for a declining trend of claims.

Friday will be the Non-Farm Payroll report for April.

  •  The weekly data may have stolen some of this releases thunder, but the large number of people out of work will receive attention from the media.

A Global Look

Economic data from abroad will include the European Commission economic forecasts and meeting minutes from the Bank of Japan and a policy report from the Bank of England.

Monday is May the 4th, which is Star Wars Day

  • While not an official Walt Disney Co. (DIS) holiday, the company has embraced it, and so has Strategic.

Cinco de Mayo

  • Given that many of us cannot physically be together right now, we must reimagine how we celebrate special occasions. Consider taking your Cinco de Mayo celebrations virtual this year, enjoying the holiday with friends and family while staying home and safe!

Buffet on Stage

  • Berkshire Hathaway’s shareholder meeting this weekend will be a significant change.
  • Usually, around 40,000 investors make a pilgrimage to Omaha for what has been called the “Woodstock of Capitalism.” This year, it will be just Warren Buffet and George Abel, who is responsible for the non-insurance operations of the Holding Company, speaking via a livestream.
  • Buffett will be asked questions about portfolio holdings and any hints for where the famed investor is looking to allocate his huge cash pile.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets of over $2 billion.