WCM Chart of the Week for July 31, 2020

Over the past few weeks, corporate earnings across the globe have been showing signs of recovery.  Citigroup’s Global Earnings Revision Index has been climbing for three weeks in a row, encouraging given the economic challenges facing the world.  While this trend is positive, its path will be unpredictable due to COVID-19 related shut down and re-openings in several key economies. The recovery in corporate earnings, if it persists, could alleviate the tragic stress in labor markets and help reinvigorate economic activity heading into 2021. Fiscal support is building momentum with the European Union’s 750 billion Euro stimulus plan (discussed last week) and the anticipated fourth phase of US stimulus.  It does remain to be seen if the enormous amount of spending, both fiscal and monetary, will have a lasting impact.

WCM Chart of the Week for July 24, 2020

The US dollar’s dominance versus the world’s leading currencies may be nearing its end, at least cyclically. Bloomberg’s US Dollar Spot index is essentially flat year-to-date and has given up all its COVID-19 flight-to-safety gains. Since March 20th, the index is down over 8%, driven by gains in the Euro and British Pound. This could be an indication that conditions in the rest of the world are improving, a welcome sign if indeed it proves to be true. One key development in our view, is that the European Union has agreed to a desperately needed 750 billion Euro ($857 billion) pandemic relief plan that is being financed collectively for the first time in history rather than by individual nations. The relief will be targeted at nations hit the hardest and will take the form of grants that will not have to be repaid. This is noteworthy because, for decades, richer northern European nations resisted aiding economically challenged countries during times of duress. This event could prove to be a watershed moment that could lead to a stronger European Union economically and politically and that would be good for the world. [chart courtesy Bloomberg LP © 2020]

WCM Chart of the Week for July 20, 2020

On Thursday, July 16th, the US Census Bureau released Retail Sales figures and month-over-month growth registered a nice surprise — 7.5%, well above the consensus estimate of 5.5%. The prior month’s figures were also revised upward.  We see this as an obvious reflection of the reopening of the US economy and pent up demand.  But, we don’t read much into the positive monthly gain versus the consensus estimate because economists have never had to forecast under conditions that can be considered “lock-down uncertainty”. What we do find encouraging and more interesting is that the reported annual growth rate was 1.1%.  At this time last year the US economy was on firm footing, and yet Retail Sales are modestly above those levels today. While the trajectory of sales growth is a relief, we would not be surprised to see some sluggishness emerge as we collectively digest the flurry of initial purchasing pre-quarantine and new virus spikes elicit further lockdown measures. [chart courtesy US Census Bureau, Bloomberg LP (c) 2020]

WCM Chart of the Week for July 10, 2020

Equities in the US have been rallying since late March. The total return of the S&P 500 is 41.7% from the crisis trough on March 23 through July 9. The recovery in stocks has been among the swiftest in history and has caught many market participants underinvested during this uncertain pandemic period. Even with tremendous stress in the labor market, the overall economy and current corporate earnings, the S&P 500 price level has produced a widely followed bullish technical pattern know as a “golden cross” after Thursday’s close. This formation occurs when two key trend lines, the 50-day and 200-day moving averages, intersect while trending upwards. Generally, this condition needs to be supported by other factors, such as the powerful fiscal and monetary stimulus which we have been highlighting for the past several months, as the main reason markets have been rebounding. Another positive development is influential investment research organizations have begun to increase corporate earnings expectations for 2021. There are still well-known risks including the ebb and flow of the global pandemic and China-related tensions with the rest of the world. We expect volatility in the capital markets emanating from these and other factors, but equities, particularly in the US, will grind higher. Chart courtesy Bloomberg LP and Standard & Poors (c) 2020.

WCM appointed lead advisor for two new impact-oriented donor advised funds

We are very proud to announce that we are joining forces with HealRWorld, Angels.Inc., and the SDG Impact Fund as the lead advisor for two new donor advised funds (DAF). Each DAF is driven by a specific mission to direct capital in pursuit of the United Nations Sustainable Development Goals. The first DAF, the HealRWorld SDG Impact Fund, is focused on improving access to financial resources to fuel business and capital formation and catalyze growth for women- and minority-led small businesses. According to MPAC Solutions, a scant 1.3% of $70 Trillion of institutional capital is allocated to women and diverse management teams. The HealRWorld fund is raising capital through the charitable structure to make mission- and program-related investments in these small businesses that demonstrate strong ESG attributes and an orientation toward attaining one or more of the SDG targets. HealRWorld’s proprietary data and analysis has demonstrated that small businesses with strong ESG attributes are up to 3X more credit worthy than the typical small business, making them both good businesses and good risks.

The fund will also make strategic investments in community- and small business-oriented targets, both through lending and taking equity stakes, in order to further align investment with mission and amplify the potential outcomes from capital raised in the DAF, as well as bring coinvestment capital to the table to multiply the available resources for these businesses.

Equally exciting is the Angels.Inc SDG Impact Fund. The Angels.Inc fund is focused on funding media projects and ventures that are contributing vastly to innovation for the betterment of society and our future as well as contributing to our well-being, mental health and amplifying the positive messages and goals of the United Nations Sustainable Development Goals (SDGs). The investment mandate for the Angels.Inc. fund is more expansive than the HealRWorld fund, committing to investing in the same small businesses, but will also invest in and fund media-related targets consistent with Angels.Inc’s “Media For Good” mandate.

For more information or to make a commitment to these amazing charitable efforts geared at empowering and ennobling business and media to lift up and serve everyone equally and inclusively, please visit our Philanthropic Services page, email the Funds at funds@healrworld.com, email us at contact@wildecapitalmgmt.com, or call us at 866-894-5332.

Lions, tigers, and bears, but what about the bees?

Every member of an eco-system, from vegetation to predator species, plays an integral role in the sustainability of that system. When one player is removed from the hierarchy, whether by result of climate change, pollution, human development, or natural occurrences, the effects are cascading. An often overlooked and yet essential vulnerable group of species is pollinators. Although bees and fruit bats are not the poster children for endangered species like tigers and elephants, their role in pollination facilitates an ecological process critical for the reproduction of wild flora and agricultural crops.

(c) 2020 P. Sorgi

According to the U.S. Department of Agriculture, more than 150 crop species in the United States, including blueberries, tomatoes, apples, bananas, and peaches, rely on pollinators annually. Alfalfa and other grain crops necessary to sustain livestock also rely upon pollination. Furthermore, more than half of the world’s diet of fats and oils are produced from animal-pollinated plants (sunflowers, almonds, canola, avocados). Honeybees alone are responsible for pollinating $15 billion in crops for the U.S. economy each year (Main, 2020). Plainly speaking, without pollinators, the globe’s future food security collapses.

Without pollinators, you can drop the dinner table conversation because there quite literally won’t be a dinner

So, where does the issue reside? According to Penn State University’s Center for Pollinator Research, since 2006, the honeybee population in the United States has declined 30-42 percent each year largely due to the impacts of climate change, habitat loss, and toxic pesticide use. Of the 65 species of flying foxes (fruit bats), 31 are threatened with global extinction (Vincenot, 2017). Protecting species of pollinators is not just the “right thing” to do; it’s compulsory for human existence.

As managers of sustainable and responsible investment portfolios, our passion lies not only in providing ethically sourced returns for our clients, but in supporting positive impact-driven organizations. Conscious investing is achieved through avoidance of institutions that harm ecosystems, in conjunction with focus on institutions that provide regenerative and resourceful solutions. [artwork (c) 2020 P. Sorgi]

Read more:

Center for Pollinator Research (Penn State University). 2020. Globally, Pollinators Are In Decline. [online] Available at: https://ento.psu.edu/pollinators/resources-and-outreach/globally-pollinators-are-in-decline#:~:text=In%20the%20US%2C%20beekeepers%20have,not%20been%20as%20closely%20tracked..

Fs.fed.us. 2020. Why Is Pollination Important?. [online] Available at: <https://www.fs.fed.us/wildflowers/pollinators/importance.shtml> [Accessed 9 July 2020].

Main, D., 2020. Bumblebees Are Going Extinct In A Time Of ‘Climate Chaos’. [online] National Geographic. Available at: <https://www.nationalgeographic.com/animals/2020/02/bumblebees-going-extinct-climate-change-pesticides/> [Accessed 9 July 2020].

Vincenot, C., Florens, F. and Kingston, T., 2017. Can we protect island flying foxes?Science, 355(6332), pp.1368-1370.

WCM Chart of the Week for June 26, 2020

The US Federal Reserve has used the power of its balance sheet to support key segments of US capital markets since early March. Recently, it began to purchase corporate securities including high yield bonds, a move some view as controversial. However, purchasing investment grade (and below) bonds essentially supports companies and ultimately jobs, and full employment is a critical element of the Fed’s mandate. Another beneficial aspect of these purchases is that corporations are making coupon payments and returning principal to the Fed, and that is not necessarily the case with US Treasury purchases. In June, the balance sheet began to shrink, albeit modestly. It peaked at $7.22 trillion on June 10th and currently stands at $7.13 trillion. Following two consecutive weeks of balance sheet declines, stocks have fallen 5.3% as measured by the S&P 500 through June 26. News headlines cite the rise in COVID-19 cases as the reason for recent stock market volatility, but the Fed’s purchasing activity is likely a greater fundamental force dictating the direction of asset prices. Is this a pause or the beginning of a monetary policy tightening cycle? The state of the Fed’s balance sheet is a critical metric that we will continue to monitor. [Chart courtesy Bloomberg LP © 2020]

WCM Chart of the Week for June 19, 2020

Chinese Communist Party (CCP) aggression in the Asia-Pacific region is on the rise. Military tension along the Himalayan border with India resulted in some 20 Indian soldiers perishing this past week. Chinese naval ships have been harassing the Japanese commercial fleet in the East China Sea, and exhibiting similar in Vietnamese, Malaysian, and Indonesian trade routes in the South China Sea. Domestically, the CCP is suppressing Hong Kong freedoms in violation of the 1984 Sino-British Joint Declaration. Globally, the lack of COVID-19 related contrition or even transparency regarding the origin and spread may all contribute to China-related backlash or retaliation. Nearly all Pacific nations have aligned with the US against Chinese aggression. We find it odd that the CCP has chosen hostility in their weakened economic condition, a moment when they really need the rest of the world for their own recovery efforts. Unfortunately, this situation is unlikely to de-escalate anytime soon.  As an example, China’s defense spending is approaching four times India’s and that military show of strength compromises the Asia-Pacific region’s stability and sovereign rights. [source: World Bank and Bloomberg LP © 2020]

WCM Chart of the Week for June 12, 2020

The main equity indices in the US were routed this past Thursday, making the week negative for the first time in three.  The decline was likely due to concerns about climbing rates of COVID-19 in new parts of the country, and comments made by the Chairman of the US Federal Reserve (Powell) regarding the economic challenges ahead.  Thursday’s sell-off was the worst in percentage terms for the S&P Total Return Index since March 16, a week before the gauge made its cyclical bottom. Another factor may have been that the US equity market was extended heading into the week.  Still, on Thursday the index managed to close above the 200-day moving average, and on Friday rebounded 1.3%.  Prior to Thursday, the index was elevated well above that long-term measure, so some give back was reasonably expected.  Friday’s gain is encouraging but we are mindful of the real challenges facing the US economy and capital markets going forward.  The next several trading days will be telling. [chart courtesy S&P and Bloomberg LP © 2020]

WCM Chart of the Week for June 5, 2020

Economic fault lines run deep across America. Many of these lines have been laid bare as a consequence of the economic crisis unleashed by the COVID-19 outbreak, but the lines were there long before, and will continue long after. Those sitting on the bottom rungs of the prosperity ladder not only were among the most vulnerable as business, trade and service ground to a halt, they are in the worst position to participate in the recovery. Access to capital is critical to household and business formation, maintenance and growth. As recently as 2017, the last time the FDIC released its biennial national survey, 18.7% of American households were underbanked (relying on payday lenders, rent-to-own, pawn shops, refund anticipation loans, and other non-bank resources), and a full 6.5%, or nearly 8.5 million households, were completely unbanked. Without access to the financial infrastructure enjoyed by nearly 70% of the population, the road ahead will be difficult if not impossible, and investing in community financing through CDFIs and other non-traditional conduits will be critical to an inclusive recovery.

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