Top Strategists on Where to Invest Now

U.S. markets have been stumbling over the past two weeks as a resurgence in COVID-19 cases has forced the re-closings of several states around the country. We are right in the teeth of earnings season, which is expected to be one of the worst on record. Financials led the way last week, and this week is packed with big technology and industrial companies reporting results.

As investors grow more anxious and economies sputter as they try to recover, Gold continues to hit record highs while the U.S. Dollar has been slipping. Stocks have held up behind the strength of the mega-cap technology companies like Amazon and Apple, but a lot is riding on their guidance for the rest of the year, if they are willing to provide it.

This week, we are again featuring Katie Koch, from Goldman Sachs Asset Management, and Ryan Detrick, LPL Financial Senior Market Strategist, with their perspectives.

While we are sharing strategists’ recommendations, every investor needs to make their own decisions based on their risk tolerance and personal situation. The comments herein are for your perspective, but should not be taken as investing advice.

Katie Koch, Co-Head of Fundamental Equity, Goldman Sachs Asset Management

“After watching earnings start to unfold last week, we observed a few major takeaways. For banking, despite sharply lower NIMs from a full quarter of the Fed taking rates to zero, strong debt and equity issuance volumes and strong client engagement led to sharp increases in trading and underwriting revenue. Strength in capital market businesses, however, helped banks to significantly offset increased loan loss provisions under the new CECL accounting standards. We saw reserve builds grow from where they were in the first quarter, reflecting a shift in worsening economic assumptions. We anticipated that slowing in the coming quarters and also see the potential for reserve release if the Fed’s base case scenario plays out.

Eye on Industrials 

On the Industrials side of earnings, most of these companies were very conservative with their guidance in April – the peak of uncertainty in the market. Given better than expected economic indicators in May and June, we were expecting them to beat their guidance. Based on the companies who have reported so far, we have seen: mid- to high-single digit beats in revenues; strong cross-sections lead to stronger margins and resulted in a 20-25% beat; and some upgrades for 2020 – but not yet for 2021. Additionally, on the regional front, we saw strong growth in China, which was more impacted in Q1, and Europe and the U.S. saw sequential improvement each month in the second quarter.

[The securities listed below are not recommendations from Katie Koch, GSAM or Investopedia. They are for reference and informational purposes only]

Ryan Detrick, LPL Financial Sr. Market Strategist

The Dollar’s Recent Weakness

“The US dollar was remarkably strong during the first quarter of 2020, benefitting from the flight to safety and rallying to nearly a 10% year-to-date gain at the stock market’s low point on March 23. However, as equity markets have recovered, and the US has continued to fight the COVID-19 pandemic, the dollar has given up nearly all of those gains. We think this trend may continue, and if so, it would have important implications for a range of asset classes.

As shown in the LPL Chart of the Day, the Bloomberg Dollar Spot Index, a more diversified basket than the commonly cited DXY Index, is nearing a critical uptrend line. A break of this support could mean that weakness seen over the past few months is more than just an unwinding of the flight to safety. Through Wednesday, the index was down more than 1% for the week and tracking toward its fourth straight weekly loss.”

Commodity Rally Pressures the Greenback

“The commodity rally is another reason to believe the market may be looking toward a weaker dollar. Commodities are typically viewed as having an inverse relationship with the dollar since the dollar is effectively the denominator of a hard asset. Gold prices are up more than 20% year to date, copper just traded to its highest level in more than two years, and silver prices have appreciated 28% this month alone.

As for the implications of a weaker dollar, a weaker US dollar may be a slight negative for US consumers’ buying power, but for investors’ portfolios the implications are overwhelmingly positive. Commodities are rallying, US multinational companies benefit from foreign buyers being able to afford more of their goods, and international stocks do well as their underlying currencies appreciate.”