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From Pandemonium to Process & Positivity

Tim and Brian walk through our investment process here at TEN, specifically as it relates to how we think about allocating a portfolio to sustainably build and maintain wealth over time.


  1. Equity Markets – rallied this week with U.S. stocks (S&P 500) up 4.77% while international stocks (EAFE) gained 3.20%

  2. Fixed Income Markets – were mixed with investment grade bonds (AGG) down -0.35% while high yield bonds (JNK) gained 1.17%

  3. Turning Point – “The vaccination program in the U.S. has hit a significant milestone with the number of people receiving at least one dose of a Covid-19 shot now larger than the total number of infections reported in the country. The deputy director of the Center for Disease Control and Prevention signaled the outbreak may have peaked, saying: "If this pandemic were a stock, we might be wanting to sell.” (via Bloomberg)

  4. Stimulus Progress – House members voted along party lines on Friday to advance the $1.9 trillion stimulus proposal in place, with VP Kamala Harris breaking the 50-50 tie in the Senate vote. This now triggers the ability for the Democrats to draft and pass a new coronavirus relief bill without any Republican support. As it stands the president has reiterated his goal of having the next stimulus bill include direct payments of up to $1400.

  5. Key Insight – [VIDEO] Tim and Brian walk through our investment process here at TEN, specifically as it relates to how we think about allocating a portfolio to sustainably build and maintain wealth over time. [ARTICLE] With the Gamestop hysteria dying down, fundamentals have been able to take center stage this week – a positive development for a number of reasons that we discuss in greater detail.



After the hysteria surrounding Gamestop last week that fascinated even casual market watchers and had many commentators predicting a market meltdown due to a Reddit revolution, things settled back down into a pretty usual routine – as they inevitably do.

Predictably all the cheerleaders calling to chase Gamestop (GME), AMC, etc. have now copped to selling their positions and GME is down almost 90% from its high.

I get it “buy low, be disciplined, be diversified (all of which we cover in greater depth in this week’s video) all sound boring and tired, but they work. History (including this recent history) shows that as sexy as big market calls, the thrill of the chase and even temporary gains can be, they almost inevitably lead to far more destruction of wealth than the creation of it. You can look fancy or get paid, it’s not a tough choice for us or our clients.

So, what is moving market’s this week? Well … don’t look now but (gasp) fundamentals.

Earnings Season Off to a Great Start

As I mentioned in last week’s video regarding all the narratives around the rampant speculation in a few stocks, eventually it’s about earnings. Whether you are frustrated at “missing out” on some euphoric stock, or that the “value” you see in a cheap stock isn’t being recognized by the markets, the good and bad news is eventually the truth (corporate profits) will play out.

With all the crazy stock stories, talk of “bubbles” and political disfunction that dominates the news, what is going on with earnings?

JPMorgan put out the following statement and chart this week, that highlights the ongoing recovery and continued earnings surprises to the upside.

“The fourth quarter earnings season is upon us, and with 49.9% of S&P 500 companies reporting earnings, we are currently tracking operating earnings per share (EPS) of $37.93. This represents a 3.2% decline from a year prior, as 84% of companies have beaten earnings estimates and 70% of companies have beaten revenue estimates. Results from financial companies have been better than expected, as the sector has benefited from the release of large loan loss reserves on the back of improving credit metrics. That said, early reporting industrial names have offset these better-than-expected results, as economic lockdowns continue to weigh heavily on the airline industry. As the earnings season unfolds, we expect technology and health care to outperform, while energy and consumer discretionary companies are likely to struggle. Looking at the three main drivers of earnings, margins continue to improve, with 4Q20 trending slightly below 4Q19 levels at 10.5%; on the other hand, revenues and share buybacks look set to weigh on EPS growth this quarter. Looking ahead, and assuming a successful deployment of vaccines, 2021 earnings will likely be driven by those factors most hindered by the pandemic such as consumer spending and travel. In such a scenario, we expect the more cyclical and value-oriented areas of the equity market (financials, industrials, energy, and materials) will outperform versus growth. Furthermore, given their more cyclical orientation, we also expect international equities to outperform the U.S., particularly those companies in emerging markets.”

While some stocks or sectors may be trading too high, we’d remind you that the reality of all the valuation talk is that valuation alone is NOT a catalyst. Furthermore, it tends to be very backward-looking. With solid earnings growth likely to continue (see below) and many pockets of the market still trading at attractive prices there are plenty of opportunities as the economy continues to reopen.

Rates & Recovery

One fundamental area to keep an eye on over the intermediate term is rates. While the Fed seems determined to keep monetary policy loose, and by extension do their best to try to keep rates down, a plausible scenario is one in which the equity market and economy continues to heat up leading to an acceleration in rising interest rates. Such a spike in yields, along with the potential for the Fed to have to play catch up with rate hikes, could throw cold water on the rally, and in particular in those parts of the stock market that are more sensitive to rates – such as everyone’s favorite sector … technology. It won’t be green lights going downhill forever for today’s stock market darlings.

The takeaway is that while the highest probability suggests more runway for risk assets, the rise in 10-year Treasury yields will be critical to watch over the next 6-12 months.

That said, the overall direction for the market and economy for now continues to be upward. Tom Essaye laid out the positive catalysts this week stating, “With the (Gamestop) drama now largely in the market’s rear-view mirror, stocks are again embracing a potentially positive near-term set up of: 1) Forthcoming massive stimulus (again) as at least $1.5 trillion will hit the economy in the next six weeks, 2) Somewhat unbelievable (at least to those of us who were in the business pre-financial crisis) dismissal of any moral hazard of QE and 0% rates by the Fed, and 3) Vaccine distribution/receding of COVID-19.

On the last point, there were many positive points this week in the battle against COVID. As we mentioned above those vaccinated have surpassed those that have been infected, also Johnson and Johnson and Novovax’s vaccines look close to being ready to be released which could take weekly vaccination rates from one to three million. Lastly, Eli Lilly announced they have an injectable antiviral that shows great promise to treating those infected.

A Little Headline “Candy” for Your Super Bowl Party Chats

No one wants to be the person talking interest rates at the Super Bowl party, so we wanted to leave you with one headline making news story, and some fun stats around similar occurrences in history. We are of course talking about the big news that Amazon Founder/CEO Jeff Bezos would be stepping down and that Andy Jassy would be replacing him.

What could this all mean for Amazon’s future? While no one really knows, Jassy is very well-respected and the history of similar transitions is actually far more positive than one might suspect.

As Bespoke noted, we have no view on what Jassy’s tenure will mean for the company’s prospects, but looking at the recent history of CEO changes, new leadership has tended not to drastically shift already in-place trends. In the chart below we show the average performance in the six months surrounding all S&P 500 companies’ most recent CEO changes that have taken place within the past five years. Since February 2016, there have been 256 companies in the S&P 500 that have seen a new CEO; 56 of those have been in the past year. From six months before through about two and a half weeks before a CEO change takes place, these stocks have on average risen to a peak of a little better than a 5% gain. The roughly two and a half weeks before the new CEO takes the reins, though, have typically seen these stocks drift lower, but those declines have not disrupted the longer-term trend. From the day a new CEO’s tenure begins to six months after, stocks of the companies they lead have risen an average of 7.29% with a win rate of 59.5% of the time.”

We hope you enjoy the big game this Sunday and have enjoyed some positive news for a change.

Have a wonderful Super Bowl weekend,

Tim and the team at TEN Capital

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