Inflation, Employment And Interest Rates
Michael Gouvalaris | Nov 12, 2020 03:47PM ET
The yield curve (difference between two-year treasury rates and 10-year treasury rates) has moved up to 80 basis points, which is a level not seen since 2017. A higher spread between the two rates is healthy. Generally this favors the financials, but I still can’t bring myself to put that much money to work in that sector. I own JPMorgan Chase (NYSE:JPM) and Berkshire Hathaway (NYSE:BRKa) currently, with Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS) on my watch list. Otherwise I still like Tech and Discretionary, with a bit of industrials and basic materials. I’m increasing my exposure to health care as well (I’ll elaborate on this during Monday’s earnings update).
Summary: Inflation is still low, and unemployment is still high. The Fed remains in play and some fiscal stimulus is likely coming within the next few months. Economic growth is moderating from the record Q3 results, but still growing. Rising cases puts the threat of disruption at the forefront. I don’t foresee this as being enough to push the economy into a double dip recession. But there is much outside of anyone’s control.
Because there is such a wide range of potential outcomes, it is important to remain well diversified. This is not the time to pile into the areas of the market that have outperformed. Remember, the markets are cyclical. The outperformers eventually turn into the underperformers (and vice versa). The key to successful long term investing is to not get too excited when things are good, and not get too pessimistic when thing
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