“Davidson” submits:
Trucking Tonnage Index(TTI) was reported at 115.3 or 1.3% below June 2019. This report reflects a similar recovery in the Rail Intermodal traffic which was est to be ~2% below June 2019 level. The signs that US economic activity is rapidly recovering continue to be well ahead of current expectations.
Many believe that the SP500 refects economic activity. Nothing could be further from the facts. The SP500 has regained prev-COVID-19 levels on extreme valuations of COVID-19 favored issues which reflect investor belief that the stay-at-home economy is likely to favor those few issues benefited by COVID-19. The effect is ~20 or so issues are entirely responsible for the rise in the SP500 with 5 issues representing 22%+ the index (MSFT, AMZN, GOOG, AAPL, FB) with respective gains of 63%, 89%, 77%,48%, 72% and TSLA while not an SP500 issue but which does heavily influence the NASDAQ has gained 500% adding substantial support. Outside of the COVID-19 favored issues, there are at least 400 which remain 15%-20% as a group below pre-COVID-19 levels. This is a market with a split perception of favoring only COVID-19 benefited issues while ignoring hundreds of companies basic to a functioning economy.
Investors have completely ignored the economic recovery as shown in this data and in the process created a unique opportunity. There are many well managed companies selling 50%-80& below historical pricing of fundamentals which are likely to produce significant upside in earnings growth which many are ignoring. In my experience markets chase returns as reported. It is a catchup game. Most investors wait till the evidence of economic growth is convincing with most of the risk removed, then they buy. The same is true about waiting till the economic evidence is negative before they sell. Anticipating changes in market psychology is the role of Value Investors who study fundamentals. That economic growth is rapidly recovering from the COVID-19 shutdown with few paying attention is a Value Investor candy store.
Buy equities of companies with histories of sound management. Many of these have had significant insider buying the last few months. The opportunities for Value Investors are many while the risk for the current crop of Momentum Investor favored COVID-19 issues is high in my experience. Every market has its own dynamic. This is the first time so many have been so focused on a single economic theme, i.e. recession or very depressed economic activity due to COVID-19, while the real story is a broad economic recovery.
This is in my opinion a unique opportunity for Value Investors.
