Tech Runs Up The Score

When the decision was made to shut down the economy, we noted that the biggest beneficiaries of this would be large corporations and Big Government while the losers would be the individual workers and small businesses. Intuitively, this makes sense as small companies lack the wherewithal and liquidity in many cases to ride out long term disruptions as American workers are forced to endure protracted shutdowns. The disparity between how the largest and most favored industries compare to smaller companies continues to be reflected in the stock market indices.

The technology led NASDAQ returned the best of any index in the third quarter at 11.24%. The biggest of these companies dominated with Amazon returning 14% for the quarter. Facebook added 15%, Apple up 27%, Nvidia up 42% and AMD up an amazing 55%. Without these names, the Nasdaq’s year-to-date return of 25% would look a lot like the S&P 500 return of 5.57% year to date.
It is imperative that the market expand beyond these technology giants. Cyclicals, industrials, and other economically sensitive stocks have performed better in recent weeks perhaps signaling a more open economy sooner rather than later. A broadening of the stock market to include smaller and more economically sensitive companies would be quite healthy. Perhaps even a breather from tech would allow for further advances down the road.

As we are weeks away from an election, we continue to get more and more questions on how we look at the current political environment and its effect on stocks. With the President behind in the polls as of this writing, can the market continue to move higher under any election scenario? We believe like all elections there will be those both happy and unhappy under any result. Either way, the sectors that do better or worse will be impacted by the winning party’s policies. It seems apparent that government spending and liquidity will remain high while interest rates will remain low for an extended period regardless of who is elected. This generally creates a solid environment for investment. I would say, however, an elected Congress keen on significant tax hikes would change our thoughts as to how quickly and fully the economy can recover therefore limiting the upside in stocks. Given the broad range of outcomes, we remain vigilant and are here for you in these unique and difficult times.


Best to all-



Joseph H. Ray

Joe Ray