Opening Statement from the November 2020 Dividend Gems

Opening Statement from the November 2020 Dividend Gems

Originally published on November 15, 2020

Overview

Over the past few weeks Europe has experienced an accelerated rate of new COVID-19 cases. In response officials have announced a reintroduction of lockdown measures which are likely to intensify in coming weeks as winter takes hold. Germany has announced a four-week lockdown of bars, restaurants, and movie theaters.

Meanwhile, France is under a more comprehensive lockdown partly due to recent violence. Italy is also seeing a worrisome resurgence in COVID-19 cases but has thus far only imposed restrictions on bars and restaurants.

Many other EU member nations have reintroduced a variety of lockdown measures and restrictions that are likely to intensify in coming weeks.

The U.S. is also experiencing a resurgence of COVID-19 cases. This has led to reintroduction of limited lockdown measures in many states. Although COVID-19 resurgence is worse in Europe, it appears as if the U.S. will soon catch up to and perhaps surpass the situation in Europe.

China is the first major economy to recover from COVID-19. But a small handful of new cases in two Chinese cities have prompted officials to initiate intense lockdown measures, while most of the country remains unaffected. We do not anticipate the Chinese economy will lose much if any momentum through the end of the year. 

In recent months, many nations have debated whether to introduce additional stimulus to combat the devastating economic impact of COVID-19 lockdowns. The recent resurgence in COVID-19 cases has made the chance of additional stimulus much more likely, especially in Europe. The timing behind the stimulus is the big question.

The resurgence of COVID-19 cases has adversely impacted the capital markets. Notably, global stock markets sold off in response to resurgence in COVID-19 cases. But equities markets recently bottomed and are in midst of a strong rally fueled by hopes of an effective vaccine against coronavirus. 

U.S. 2020 3Q GDP growth was reported at 33.1%, representing the largest quarterly gain on record. Estimates for Q4 GDP are less certain, ranging between 3% and 7%. The wide range of estimates for Q4 GDP reflects the uncertainty and timing of another stimulus package...

Earnings

We published our latest estimate of 2020 full year earnings growth for the S&P 500 at -15% in the October 2020 issue of Dividend Gems. Earnings results continue to beat consensus estimates at a significantly higher pace than what we have seen over the past several years...

We believe this trend of strong earnings beats will persist through at least Q4 2020. As such, we are lowering our 2020 full year earnings growth estimate to -14%.

Market Overview

After experiencing a significant selloff two weeks before the U.S. presidential election, the U.S. stock market mounted a strong rally in the days prior to, during and after the election. This rally was felt throughout the globe reaching most equities markets...