Transcript:
Tom Vaughan:
I just like to start with the summary about what I saw happened this week, as far as that goes. And so this has been a very interesting week, in terms of what’s going on, and there’s a lot of different kind of cross currents that are happening. So let me share my screen, and I’ll go through those with you. Alright, so this is a chart from the New York Times, just showing the number of cases here for the virus. And so obviously, this is a really big deal, the last two weeks, we’ve had this really big growth in the virus, and you can see that here. And so this is one of the things that really seems to be you know, looking at what’s happening within the market, because, we’ve been working on this reopening piece, and everything’s going to reopen here, and now maybe the reopening could be slower because of the virus outbreak and what have you, and how does that affect things? I will say a couple of different things. This particular trend definitely looks troubling, as far as that goes. But if we look back to the timeframe that we had here from end of September through January, we ended up with a really big growth in cases as far as that goes; if the stock market did quite well in that timeframe.
So one of the things the Federal Reserve talked about this week, was just that they felt like the economy could still function fairly well, inside of this pandemic, and we’ve gotten better at it and what have you. There’ll be certain industries, certainly that would be impacted, but a lot of those industries aren’t that heavily represented in the stock market. And so the companies, the big companies: The Apples, the Microsofts the Googles, and what have you are still able to function fairly well. And the only way that those big companies really start to have trouble is that the overall economy comes down so much that people stopped buying iPhones or whatever it is. That’s what we kind of want to watch out for, and we’ll see you know how the government responds to this. But we are seeing a little bit of vaccine growth, still, This chart basically shows how many people have had a double vaccination. So August 5, we hit 70% for all adults; August 2, had at least one shot. And but the projection here is interesting. They’re saying that by October 2, we might be at 70% for the entire population, including kids under 12. That would obviously require us to have that approval at some point in time here fairly soon, hopefully, soon because schools about to reopen. So, there’s a bunch of different crosscurrents happening there. And again, this is one of the most interesting times I’ve ever seen. And really, this is a historic timeframe; it’s very fascinating to see how this will play out.
But the vaccine and the virus are definitely a part of the story, especially with the resurgence as far as what’s going on there. And then today, we had a report, this is one of the most important numbers that come out every single month, is how many new jobs were created. And so today, this morning, they reported that for July, we had 943,000 new jobs created. And so you can see prior to the pandemic, we had 152 million people working, that dropped all the way down to 130 million, that’s a historic drop off 22 million jobs lost in a very short period of time; and then we’ve now crawled back up to 146 million. But there are a couple pieces that are really important with this 943,000. Number one is it’s a really good number, but it’s not so good that people are really nervous about an inflationary environment, because labor is the one key thing that people watch for in the inflation conversation, but we still have 6 million people less working than we did back here. And we didn’t have that much inflation here. So we’ll see what happens. There’s other reasons we might have some inflationary pressure here than just labor. And so but this is a really important piece, I do see this as a really good number today. Too low, there would have been some concern about the economy not opening fast enough, not enough people coming out of their homes back into the workforce and what have you. So this is a really significant number today. And it had some impact today, and I’ll show you how that what happened there too. But the other piece is has to do with inflation. And so, it’s really amazing, because there’s a group that saying, “Hey, you know, that might be reopening too slow, because of the virus.” And another group saying, “We might have, a really high inflationary environment.”
But the one thing I would say is watch the 10 year Treasury yield. And so this blue line here is the yield for the 10 year Treasury over the last six months. You can see we hit this big peak back in March and April, and we’ve basically been coming down. So when the yield comes down, what that’s telling you is that the market is feeling like there’s less threat of inflation. So that’s a big deal. We did see a big jump today if you see that. Just because the no job report was pretty good. Maybe that tightens up the job market a little bit. But really, the trend is still very much so down. And so the threat of inflation, as far as the bond market is concerned, is relatively minor at this point in time, or at least getting better than it was: The thought process back here in February, March when things are really going up. So that’s another piece that we have to look at when we’re looking at what’s happening with the market. And so far, I think that’s doing okay. And that’s stimulative to the market, in my opinion. When the rates come down here on the 10 year Treasury, the stock market looks more attractive. Now, here is the stock market.
This particular chart shows the Total Stock Market Index from Vanguard. And this is the ETF version: The ticker symbol’s VTI. And so this is essentially all of the stocks in the US stock markets. I really like looking at this, this is the one index that I watch all the time. And this is the last three weeks, and every one of these bars is 10 minutes. And so you can see, these blue spaces here are each day. And over the last three weeks, we had a big drop. One Monday here, and we came back, but look, we’re basically just going sideways, the last two weeks all together. Really no motion: Lots of news, lots of things happening, but the market is just moving sideways. And I don’t think that’s a bad thing. Because here’s one of the things that I am looking at, and that’s this chart here. This is the last one year. Again, now each one of these bars is a day. And so if you look at this blue line, this is the 200 day moving average. So it’s an every point on this line is an average of the previous 200 days. And so one of the things we look at is, “Where’s that going?” Well, it’s going straight up. That’s really, really strong actually. And, one of the things I look at is that there’s normally downturns and they let the pressure off of getting way too overpriced. Sometimes there are big downturns. I don’t see that happening, but I do think that there’s some room for a smaller downturn. And the last time we had smaller downturns right here, these were almost 10%. This was September and October of last year; and so it’s been a while.
And this is kind of I talked about stretching the rubber band, we’re stretching a rubber band. So one of the ways to let this steam off those is to go sideways. So that’s why I kind of like what’s happening in the last couple of weeks: It’s just kind of letting things settle a little bit. And but if it does pull back, that’s not a bad thing, either. Because look at what happened when they when it pulled back in September and October, that created this buying frenzy, so to speak, and we ended up with this really incredible run from that point in time. So I wouldn’t be too worried about it, if it does happen. But that’s something that we’re looking at as far as that goes. And that’s not an issue; it’s not, “hey, the markets falling because everything’s falling apart”: It’s a normal part of the market to settle in, and pullback create some buying and what have you. So we’ll see what happens there. Now, this is the what we call the nine boxes. So this is just this week, looking at it. And so we’ve got value and growth, different types of categories and core. And we’ve got big stocks and little stocks and small companies etc. And so you can see the biggest winner is the large growth. Again, think Apple, Microsoft, Google, Amazon, etc. But growth as a whole did quite well, that looks just like last year, this particular column right here was the leader last year, because these are companies in general that can operate in a virus environment. As you can see what happened in the last week, their concern was partly about the virus. And if you look down here, the worst category is the small value. These are the most economically sensitive, and it’s also full of reopening stocks, that need the virus to kind of go away to really function fully. And so you can see what was happening there.
And if you look at the last month, it kind of just confirmed: So over the last 30 days, the big stocks have been doing well. When things are a little challenging, and they don’t know where things are gonna go, a lot of times the high quality companies with lots of cash, lots of cash flow, those are the ones to get, again, the lowest category was here and that small value, but look what happened today. So today, it’s just the opposite, that the numbers came out for employment, they were very good. People are starting to feel better about the reopening possibilities, at least for the day. And we saw that small value really, really moving today. And actually some sell off here in this category that’s been running quite well as far as that goes. So this is a reason why you want to be it kind of in the broad market, you really want to own all nine of these boxes. And the one of the ways to do that is if you take a look at our portfolio, this is our current stock market mixture right now in our traditional model, is to own the total stock market index. That’s our biggest position and then one of the reasons that we have that is because their money is moving around so rapidly: There aren’t a lot of trends. And then we also own a big chunk of the S&P 500. Same thing just on all of that, as far as that goes. And then we have two large broadly diversified ESG portfolios. And so ESG is kind of interesting. It’s environmental, social, and governance. And what they’re doing is they’re rating companies on those three areas, and they come up with a number. And so Vanguard, if you look at this right here, the Vanguard ESG USA: ESGV is the ticker symbol. This is the same index, it’s they take the total stock market, and they just screen it out for those ESG stocks.
And let me tell you why this is working. And here’s a chart from Morningstar, this is the amount of money going into sustainable investing since 2009. Look at this chart, this is the most untalked about thing I’ve ever seen. It’s incredible, there is a massive growth in sustainable investing, and it’s just going basically straight up. And so that’s making those pieces do quite well. And really, there’s a lot of interest there. And when money flows into one area, generally speaking, that area has a chance of continuing to gain, and this chart shows that at least at the moment, it doesn’t seem to be slowing down. Matter of fact, the projections are that that could pick up quite a bit. And we actually do have 100% ESG portfolio. So it’s got that same, Vanguard ESG US stock piece in it, and several other pieces, and these are our targeted indexes, including water, which is doing really well. And so essentially, what’s happening here, this particular portfolio is in all these cheap, it’s doing quite well, fairly popular within our clientele as far as that goes to so. So that’s kind of what’s happening this week, really fascinating. If you look at you’ve got that cross currents of the variant coming up, creating some potentials, economic slowdown situations, and then today’s report of a really good jobs report coming out is showing a situation where the reopening could be still on track as far as that goes. And so, again all of these things are happening. There’s no way to really get onto one trend or another very well this year, in my opinion. I do like the high quality area. I love that right now. I think that’s a great area to be because in times of uncertainty, I’d rather own a company like Apple that has so much cash and so much cash flow. But really, I would like to own all of it: The entire market as far as that goes as much as possible. So, anyway, that’s what’s happening this week. It’s a very, very fascinating week. And this is, again, historic timeframe to really see how this is going to play out. So I look forward to kind of talking to you about that again next week.