Page 23 - Investment Advisor May 2021

Jan. 27) and then fell to $53.50 on Feb. or December, he says. “So there is long-term returns and rising rates are
4. Had the advisor sold then with the an opportunity, a window to harvest also a headwind for both income inves-
loss and parked the money for 30 days in those losses.” tors … and corporate margins.”
another stock, ETF or cash, they could Advisors need to be “tax-smart in
have reinvested in GameStop if inter- everything [they] are doing,” Klapprodt KEEP A ‘VALUE MINDSET’
ested 31 days later — around March 8, said. Therefore, when buying and selling Sonders says that investors “should have
when it was at $246.90. stocks, “do it with a notion of tax-loss a value mindset but not put blinders on.”
The advisor generates the losses harvesting. We encourage advisors to That doesn’t mean buying a major stock
now because they don’t know where think about the client tax bill and what market value index, she said, but having
GameStop is going to be in November they can do to minimize it.” a “focus on the actual fundamentals of
growth and value for a stock.”
She recommends a combination of
Schwab’s Sonders: Where to passive and active investing because the
latter can address the higher correlation
Invest as S&P Tops 4,000 that’s apparent now across and within
asset classes as well as the wider disper-
sion of potential returns among stocks.
he S&P 500 index set record “The biggest risk for the market is
Thighs, buoyed by growing opti- speculative excess … We learned in the
mism about economic growth. The $1.9 late 90s and early 2000 periods that
trillion economic relief plan signed speculative excess doesn’t make a lot
by President Joe Biden in March of fundamental sense but can last a
coupled with his plans to spend even long time.”
more ($2.25 trillion) on infrastructure From a more fundamental view, she
investment and the growing number noted that U.S. stock market is less over-
of Americans vaccinated for COVID-19 valued today than in the fourth quarter
underpin that optimism. of 2020, based on the forward price-to-
But there are growing questions earnings ratio of around 23 despite the
about how far the rally can go and excessive speculation in low quality sec-
how long it can last and whether the tor of the market and the popularity of
some parts of the U.S. stock market are Morningstar analyst Dave Sekera special purpose acquisition companies
overvalued. That said, some sectors of writes in his Quarter-End Insights (SPACs), which are shell companies in
the stock market may have more room report that the broad U.S. equity market search of investment targets.
to run, Liz Ann Sonders, chief invest- is 3% overvalued even after account- Sonders noted she’s “not saying the
ment strategist at Charles Schwab, tells ing “for a strong economic resurgence market is cheap,” but she’s not con-
Investment Advisor. in 2020” that carries over into 2021, cerned about valuations like she was in
but many individual stocks are not, 2000. She expects a “pop in inflation
WHAT HISTORY AND including many value stocks, which in conjunction with a huge surge in
VALUATIONS TELL US have outperformed year to date. “Value growth,” which also will raise rates, but
Nicholas Colas, co-founder of DataTrek stocks should benefit from the strong isn’t concerned about systemic wage
Research, notes in his latest briefing
economic resurgence in 2021 and 2022
price inflation.
Wood photo: Courtesy of ARK Invest 500 to post double-digit gains three stocks to outperform.” stock market today, Sonders said Schwab
… but … we no longer expect small-cap
As for where she sees value in the
report that it’s very unusual for the S&P
However, “it’s not all blue skies,”
rates the financial and health care sec-
years in a row — it gained 31.2% and 18%
tors as outperformers and utilities and
writes Bank of America Securities strat-
in 2019 and 2020, respectively — though
not unheard of. “Could that happen
consumer staples as underperformers
egists in a market note. “The market
again with an accommodative Fed and
over the next months. She also favors
appears to already be pricing in addi-
small-caps, which are “more levered to
tional stimulus and the focus is shifting
a Democratic President and Congress
the pickup in the economy,” but only
pushing for more fiscal aid? Yes, as long
to paying it back (i.e., higher taxes).
Valuations today are signaling anemic
as rates don’t rise too high,” writes Colas.
quality small-caps.
MAY 2021 INVESTMENT ADVISOR 21