Market Commentary - July 2020

Jul 16, 2020 | Paul Belous


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The month of June saw volatility continue but basically go nowhere in overall market terms. That is how it appears on the outside, however, on the inside, we continue to see wide distortions. The top-five market capitalization companies are now 25% of the S&P 500 weight and 45% of the NASDAQ index. When the money goes into these five names, it continues to move the market.

On the flip side, I continue to see great companies being thrown aside while actually making good money. Investors continue to pour money into high-growth names that have no profits or the potential for profits for years. Whether it is a lack of sports and lack of gambling, I am not sure, but we have seen a rise in day trading and maybe the market is a new form of entertainment for some during this pandemic.

I do expect the summer to continue to be volatile, especially in high-growth names, however when this eventually ends, and it will, it will not end well for those invested in these areas. I am continuing to look for great companies that pay solid dividends and have a reasonable assumption for growth. In the U.S., there is lots of potential, as the rollout of 5G might have been kickstarted faster, and there has also been a huge investment in drug companies. These are longer-term trends toward which we are positioning the portfolio.

In Canada, I remain cautious, and it is hard to find solid growth names. I see Shopify trading at a market capitalization larger than RBC Royal Bank, and Lululemon trading at a market capitalization of almost the same as CIBC. Yes, Shopify and Lululemon may be good companies, however, one makes few profits and the other is nowhere near what CIBC makes. The moral of this story is that when these beloved names finally get valued based on fundamentals, something will give and more than likely, it will be the price.

I expect July will be full of new headlines regarding the pandemic and the U.S. presidential election on the horizon. I expect the market to react to these headlines, but nothing is likely to change until we have the North American economies fully opened and we can get back to pricing companies appropriately. In the short term, it will be guesses, and that is not how we elect to look after your money.