Hi there—here is this week's update!
TL;DR - Too Long Didn't Read
-Top-level, we're still seeing a widening gap between Main Street (individual investors) and Wall Street (professional investors).
-Bridgewater, one of the most well-known hedge funds, warns of a possible 'lost decade' for stock investors.
-COVID-19 is starting to worry investors again.
• Ray Dalio's Bridgewater warns of possible 'lost decade' for equity investors due to a tightening in U.S. corporate profit margins.
• "Globalization, perhaps the largest driver of developed world profitability over the past few decades, has already peaked," say its analysts. The hedge fund points at the perpetual US-China trade war and global pandemic as catalysts for companies to move production back to their home country to achieve more reliable supply chains, despite higher costs.
• Analysts say that the pandemic-induced collapse in demand has already resulted in a considerable fall in profit margins. It's warned that many companies who survive the economic fallout of the virus are likely to emerge plagued with lower profits and cash shortfalls, as well as higher debt levels.
Cash and Money Market Funds
• Money Market Funds (MMFs) are typically used by investors as a cash alternative.
• MMF balances soared from $3.7 trillion in early March to a near-record $4.68 trillion as the market sold off.
• A Deutsche Bank analysis shows that investors are holding more cash relative to past market crises due to the uncertainty and fear surrounding the market. Due to mounting concerns of a second wave, it is premature to expect a mass reversal back into risk assets.
• Fixed Income ETF inflows have outpaced those of Equity ETFs throughout 2020. "You put that together with being in cash, it does paint the picture of investors essentially not being optimistic about the market, and maybe not being optimistic about the economy," said Alicia Levine, chief investment strategist at Bank of New York Mellon.
We're going to keep things simple this week and echo some of last week's sentiment.
We're officially in a recession, COVID-19 is lingering and continuing to surge in individual states, economic data is continuing to look grave, and the stock market is remarkably overvalued.
The markets may go sideways for the near-term. However, we are firm believers that once the other shoe drops and reality sets back into the markets, we will likely see the markets go below the March lows. If and when that happens, we will see incredible long-term buying opportunities.
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