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Coronavirus Crisis – “Clients Should Own Stocks of Companies that Can Prosper During a Pandemic”

Stocks Struggle As The Bull Market In Virus Cases Rises 07-17-20



This article was originally published by Real Investment Advice.

In this issue of, “Stocks Struggle As The Bull Market In Virus Cases Rises”
  • Technically Trapped
  • Economic Expectations Slow
  • Who Ya Gonna Believe
  • The Risk Of Confirmation Bias
  • MacroView: Value Is Dead. Long Live Value.
  • Sector & Market Analysis
  • 401k Plan Manager
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Catch Up On What You Missed Last Week

Technically Trapped

Last week, we discussed why we were taking profits in positions that had gotten egregiously overbought for the second time this year. To wit:
“For the second time in a single year, we have begun the profit-taking process within our most profitable names. Apple, Microsoft, Netflix, Amazon, Costco, PG, and in Communications and Technology ETFs.”
That turned out to be timely as technology shares struggled to maintain their altitude. The tight “wedge” pattern that has developed suggests a downside break could quickly lead to a test of the 50-dma. Such would equate to about a 7% decline. Furthermore, the S&P 500 continues to remain “technically trapped” between the June highs and the recent consolidation lows. With the market overbought on a short-term basis, the upside has remained limited. However, there is substantial support between the current uptrend line and the 50- and 200-dma’s, limiting downside risk at this juncture. We will update our risk/reward ranges below. However, as noted previously, July held to its historical performance tendencies. However, the risk comes in August and September, where outcomes tend to be more volatile.
“In the short-term, the bulls remain in charge currently, and as such, we must be mindful of those trends. Also, the month of July tends to be one of the better performing months of the year.”
Earnings, The Bullish Test Comes As Earnings Season Begins 07-03-20

The Bull Market In Virus Cases

August and September’s seasonal tendencies will also be impacted by the ongoing “bull market” in “virus” cases. Our colleague Jeffrey Marcus noted a critical point for our RIAPro subscribers (30-day Risk-Free Trial)
“The question for clients is this: ‘Is the pattern of the past 5-days a broadening of the rally since March 23rd lows, or are investors moving too far out on the risk curve?’ Experian’s 4 possible Covid-19 economic scenarios may provide an answer. The worst scenario was a W-shaped.”
“There were 72,045 new cases of Covid-19 in the U.S. The second worst daily number to date (chart below). Although the market seems to have ignored the worsening numbers so far, the V-shaped scenario seems a long-shot at this juncture. Can the U.S economy somehow rebound with ever-increasing cases of Covid-19? The market action over the past 5-days seems to depend on the belief of recovery, and the hope cheap valuations will buffer against tough financial conditions. Clients should own stocks of companies that can prosper during a pandemic ridden economy. Such is as opposed to just ‘hoping’ stocks with rocky roads ahead will continue to rally.”
It is unlikely that a “bull market” in the number of new virus cases can co-exist with a bull market in stocks for long.  

Economic Expectations Slow

The most significant risk to the current bull market in stocks comes in two specific headwinds – Congress and the Fed. At the end of the month, the additional $600/week in jobless benefits will expire. Such is no small matter, as noted by CNBC:
  • 25.6 million individuals will lose the additional benefit on July 25th.
  • $15.4 billion in additional weekly economic benefit nationwide up from states spending less than $1 billion pre-pandemic.
These payments have been a big part of the boost to retail sales over the last couple of months. Retail sales comprise roughly 40% of Personal Consumption Expenditures, which equates to about 70% of the GDP calculation. In other words, it is not a trivial matter. While it seems like a “no-brainer,” that Congress should extend the benefits, there are some issues which could get in the way:
  1. Political football (R) – Republicans intend to end the enhancement to jobless benefits as they view it as a disincentive for people to return to work. 
  2. Political football (D) – Democrats realize an election is soon. If the economy is doing well due to the benefits, the odds increase for a re-election of the incumbent.
  3. Debt Ceiling Debate – With the debt-ceiling, the debate on the next “continuing resolution” will become problematic. For conservative Republicans up for re-election, unbridled spending is going to become problematic.
Even with the current support in place, the initial rebound of economic activity off the lows has begun to slow and stabilize at a level lower than pre-pandemic. Such should NOT be a surprise with 36.4 million workers either on, or waiting for, unemployment benefits.

Federal Contraction

The other headwind for the market comes from the very thing that boosted asset prices to start with – the Fed’s balance sheet expansion. Over the last couple of months, the slowing rate of advance for the market has coincided with a reduction in the Fed’s “emergency measures.” As noted previously, the limit to the Fed’s QE program is the Government’s Treasury issuance. An improving economy increased tax revenues, and improved outlooks began limiting the Fed’s ability to engage in more extensive monetary interventions. Jerome Powell noted the Fed has to be careful not to “run through the corporate bond market.” The Fed is aware if they absorb too much of the Treasury or Corporate credit markets, they will distort pricing and create a negative incentive to lend. Such impairment would run counter to the very outcome they are trying to achieve. As noted last week, there is already a “diminishing rate of return” on QE programs.
“Instead, as each year passed, more monetary policy was required just to sustain economic growth. Whenever the Fed tightened policy, economic growth weakened, and financial markets declined. The table shows it takes increasingly larger amounts of QE to create an equivalent increase in asset prices.”
Bullish, #MacroView: The Threats To The Bullish Thesis Have Grown
“As with everything, there is a “diminishing rate of return” on QE over time. Since QE requires more debt to be issued, the consequence is slower economic growth over time.

Who Ya Gonna Believe

My friend Doug Kass also made a salient comment regarding the economic risk in front of us.
“Some fundamental investors (like myself) are looking closely at the flattening high-frequency economic data, and the rising chorus of company executives flagging economic and market uncertainties over the last few days. Specifically, the management of Citigroup, Wells Fargo, JPMorgan, and Goldman Sachs all echoed the same mantra. They are surprised by how optimistic the economic and business forecasts have grown, and the enthusiastic embrace of the capital markets. These wise managers of businesses have their feet on the ground and virtually dismiss a “V” type recovery that many have endorsed. To paraphrase, they all see many possible outcomes (many of which are adverse and not market-friendly). Look to the ground, not to the sky – believe them (bank CEOs) and not the markets’ seductive lying eyes.”
As noted above, the data does confirm those views. More importantly, there is another issue that derives from a weaker economic outlook.

Stocks Are About To Get A Lot More Expensive

As Eric Parnell recently wrote:
“The current forward price-to-earnings ratio on the S&P 500 based on 2020 earnings is 35.6 times earnings. The historical average forward price-to-earnings ratio on the S&P 500 dating back a century and a half is 15.6 times. Thus, today’s valuation is more than +125% greater than the historical average. The forward P/E ratio on the S&P 500 has been higher than 35.6 only two other times in history. Both are recent episodes. The first was from 2001-Q1 to 2002-Q2 during the bursting of the technology bubble. The second was from 2008-Q2 to 2009-Q1 during the Great Financial Crisis. During both of these past episodes, the P/E ratio moved in excess of 35 times forward earnings, because while the S&P 500 price was falling (the “P” in the P/E ratio), the earnings were falling much faster (the “E” in the P/E ratio). In contrast, the P/E ratio has moved in excess of 35 times forward earnings today because the S&P 500 price is rising even though earnings are falling considerably.”

More To Go

That is correct, and the issue currently is that expectations for earnings are still far too high through the end of 2020, and into 2021. As I discussed previously:
“Currently, estimates have only been reduced by 34% of their previous peak. Such comes at a time where economic growth is weaker, job loss is higher, and consumption will drop lower than any previous point except during the ‘Great Depression.'”
fully invested bears, Technically Speaking: Unicorns, Rainbows, & Fully Invested Bears
“We are watching the chart closely as we expect that earnings will eventually drop closer to $60/share to align with historical norms. As such, stock prices will have to correct to align with those earnings.”
(Note: Since that writing, trough estimates have declined to $91.79. The current bear market P/E is currently 35.13x.) However, even those estimates are likely optimistic, given the data that is coming in. We would not be surprised to see a negative sign in front Q2-GAAP earnings before it is over. At the moment, such “fundamental relics” like earnings may not seem to matter. Such has always seemed to be the case, just before they begin to matter, and matter a lot.  

Updating Risk/Reward Ranges

As noted last week:
“The [advice to reduce risk] played out well this past week, given daily swings in the market. While the market was up for the week, it has not reclaimed the June highs. As such, the consolidation continues with risk/reward remaining primarily ‘neutral’ with a ‘negative’ bias.”
That advice remains this week. After several failed tests of the June highs this week, we derisked our portfolios and added to our hedges. Even with those adjustments, our portfolios continued to perform as the rotation to “risk-off” sectors kept markets stable. The reason for the derisking is the negative tilt to the risk/reward ranges currently. 
  • -4.3% to initial March reflex rally top vs. +2.1% all-time highs.* (Negative)
  • -5.4% to 50-dma support vs. +2.1% to all-time highs.* (Negative)
  • -7.2% to 200-dma support vs. +2.1% to all-time highs.* (Negative)
  • -9.6% to -15.8% to previous consolidation vs. +2.1% to all-time highs.* (Negative)
(* If the market breaks out to all-time this analysis is no longer valid and risk/reward ranges will recalibrate for the breakout.)

The Risk Of Confirmation Bias

I have written many times previously about the dangers of getting trapped into a “bullish” or “bearish” mindset. As an investor or portfolio manager, your job is to view the markets for opportunities to increase capital and protect it from loss. As Doug noted this week:
“There are many who see the markets as “Them versus Us.” The bulls vs. the bears, the fundamentalists vs. the technicians, and so on. I view the investment marketplace as me vs. the markets, and not me vs. opposing views.
The most significant risk to any investor long-term is getting trapped in “confirmation bias.” Such is the psychological impediment of seeking out information that confirms your existing predisposition. However, such inherently leads to adverse outcomes as investors become blind to the risk that inherently upends their future outcome.  In the end, it does not matter IF you are “bullish” or “bearish.” The reality is that the “broken clock” syndrome owns both “bulls” and “bears” during the full-market cycle. However, grossly important in achieving long-term investment success is not necessarily being “right” during the first half of the cycle, but by not being “wrong” during the second half.

The MacroView

If you need help or have questions, we are always glad to help. Just email me. See You Next Week By Lance Roberts, CIO

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The post Stocks Struggle As The Bull Market In Virus Cases Rises 07-17-20 appeared first on RIA.

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Watch Yield Curve For When Stocks Begin To Price Recession Risk

Watch Yield Curve For When Stocks Begin To Price Recession Risk

Authored by Simon White, Bloomberg macro strategist,

US large-cap indices…



Watch Yield Curve For When Stocks Begin To Price Recession Risk

Authored by Simon White, Bloomberg macro strategist,

US large-cap indices are currently diverging from recessionary leading economic data. However, a decisive steepening in the yield curve leaves growth stocks and therefore the overall index facing lower prices.

Leading economic data has been signalling a recession for several months. Typically stocks closely follow the ratio between leading and coincident economic data.

As the chart below shows, equities have recently emphatically diverged from the ratio, indicating they are supremely indifferent to very high US recession risk.

What gives? Much of the recent outperformance of the S&P has been driven by a tiny number of tech stocks. The top five S&P stocks’ mean return this year is over 60% versus 0% for the average return of the remaining 498 stocks.

The belief that generative AI is imminently about to radically change the economy and that Nvidia especially is positioned to benefit from this has been behind much of this narrow leadership.

Regardless on your views whether this is overdone or not, it has re-established growth’s dominance over value. Energy had been spearheading the value trade up until around March, but since then tech –- the vessel for many of the largest growth stocks –- has been leading the S&P higher.

The yield curve’s behaviour will be key to watch for a reversion of this trend, and therefore a heightened risk of S&P 500 underperformance. Growth stocks tend to outperform value stocks when the curve flattens. This is because growth companies often have a relative advantage over typically smaller value firms by being able to borrow for longer terms. And vice-versa when the curve steepens, growth firms lose this relative advantage and tend to underperform.

The chart below shows the relationship, which was disrupted through the pandemic. Nonetheless, if it re-establishes itself then the curve beginning to durably re-steepen would be a sign growth stocks will start to underperform again, taking the index lower in the process.

Equivalently, a re-acceleration in US inflation (whose timing depends on China’s halting recovery) is more likely to put steepening pressure on the curve as the Fed has to balance economic growth more with inflation risks. Given the growth segment’s outperformance is an indication of the market’s intensely relaxed attitude to inflation, its resurgence would be a high risk for sending growth stocks lower.

Tyler Durden Wed, 05/31/2023 - 13:20

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COVID-19 lockdowns linked to less accurate recollection of event timing

Participants in a survey study made a relatively high number of errors when asked to recollect the timing of major events that took place in 2021, providing…



Participants in a survey study made a relatively high number of errors when asked to recollect the timing of major events that took place in 2021, providing new insights into how COVID-19 lockdowns impacted perception of time. Daria Pawlak and Arash Sahraie of the University of Aberdeen, UK, present these findings in the open-access journal PLOS ONE on May 31, 2023.

Credit: Arianna Sahraie Photography, CC-BY 4.0 (

Participants in a survey study made a relatively high number of errors when asked to recollect the timing of major events that took place in 2021, providing new insights into how COVID-19 lockdowns impacted perception of time. Daria Pawlak and Arash Sahraie of the University of Aberdeen, UK, present these findings in the open-access journal PLOS ONE on May 31, 2023.

Remembering when past events occurred becomes more difficult as more time passes. In addition, people’s activities and emotions can influence their perception of the passage of time. The social isolation resulting from COVID-19 lockdowns significantly impacted people’s activities and emotions, and prior research has shown that the pandemic triggered distortions in people’s perception of time.

Inspired by that earlier research and clinical reports that patients have become less able to report accurate timelines of their medical conditions, Pawlak and Sahraie set out to deepen understanding of the pandemic’s impact on time perception.

In May 2022, the researchers conducted an online survey in which they asked 277 participants to give the year in which several notable recent events occurred, such as when Brexit was finalized or when Meghan Markle joined the British royal family. Participants also completed standard evaluations for factors related to mental health, including levels of boredom, depression, and resilience.

As expected, participants’ recollection of events that occurred further in the past was less accurate. However, their perception of the timing of events that occurred in 2021—one year prior to the survey—was just an inaccurate as for events that occurred three to four years earlier. In other words, many participants had difficulty recalling the timing of events coinciding with COVID-19 lockdowns.

Additionally, participants who made more errors in event timing were also more likely to show greater levels of depression, anxiety, and physical mental demands during the pandemic, but had less resilience. Boredom was not significantly associated with timeline accuracy.

These findings are similar to those previously reported for prison inmates. The authors suggest that accurate recollection of event timing requires “anchoring” life events, such as birthday celebrations and vacations, which were lacking during COVID-19 lockdowns.

The authors add: “Our paper reports on altered timescapes during the pandemic. In a landscape, if features are not clearly discernible, it is harder to place objects/yourself in relation to other features. Restrictions imposed during the pandemic have impoverished our timescape, affecting the perception of event timelines. We can recall that events happened, we just don’t remember when.


In your coverage please use this URL to provide access to the freely available article in PLOS ONE:

Citation: Pawlak DA, Sahraie A (2023) Lost time: Perception of events timeline affected by the COVID pandemic. PLoS ONE 18(5): e0278250.

Author Countries: UK

Funding: The authors received no specific funding for this work.

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Hyro secures $20M for its AI-powered, healthcare-focused conversational platform

Israel Krush and Rom Cohen first met in an AI course at Cornell Tech, where they bonded over a shared desire to apply AI voice technologies to the healthcare…



Israel Krush and Rom Cohen first met in an AI course at Cornell Tech, where they bonded over a shared desire to apply AI voice technologies to the healthcare sector. Specifically, they sought to automate the routine messages and calls that often lead to administrative burnout, like calls about scheduling, prescription refills and searching through physician directories.

Several years after graduating, Krush and Cohen productized their ideas with Hyro, which uses AI to facilitate text and voice conversations across the web, call centers and apps between healthcare organizations and their clients. Hyro today announced that it raised $20 million in a Series B round led by Liberty Mutual, Macquarie Capital and Black Opal, bringing the startup’s total raised to $35 million.

Krush says that the new cash will be put toward expanding Hyro’s go-to-market teams and R&D.

“When we searched for a domain that would benefit from transforming these technologies most, we discovered and validated that healthcare, with staffing shortages and antiquated processes, had the greatest need and pain points, and have continued to focus on this particular vertical,” Krush told TechCrunch in an email interview.

To Krush’s point, the healthcare industry faces a major staffing shortfall, exacerbated by the logistical complications that arose during the pandemic. In a recent interview with Keona Health, Halee Fischer-Wright, CEO of Medical Group Management Association (MGMA), said that MGMA’s heard that 88% of medical practices have had difficulties recruiting front-of-office staff over the last year. By another estimates, the healthcare field has lost 20% of its workforce.

Hyro doesn’t attempt to replace staffers. But it does inject automation into the equation. The platform is essentially a drop-in replacement for traditional IVR systems, handling calls and texts automatically using conversational AI.

Hyro can answer common questions and handle tasks like booking or rescheduling an appointment, providing engagement and conversion metrics on the backend as it does so.

Plenty of platforms do — or at least claim to. See RedRoute, a voice-based conversational AI startup that delivers an “Alexa-like” customer service experience over the phone. Elsewhere, there’s Omilia, which provides a conversational solution that works on all platforms (e.g. phone, web chat, social networks, SMS and more) and integrates with existing customer support systems.

But Krush claims that Hyro is differentiated. For one, he says, it offers an AI-powered search feature that scrapes up-to-date information from a customer’s website — ostensibly preventing wrong answers to questions (a notorious problem with text-generating AI). Hyro also boasts “smart routing,” which enables it to “intelligently” decide whether to complete a task automatically, send a link to self-serve via SMS or route a request to the right department.

A bot created using Hyro’s development tools. Image Credits: Hyro

“Our AI assistants have been used by tens of millions of patients, automating conversations on various channels,” Krush said. “Hyro creates a feedback loop by identifying missing knowledge gaps, basically mimicking the operations of a call center agent. It also shows within a conversation exactly how the AI assistant deduced the correct response to a patient or customer query, meaning that if incorrect answers were given, an enterprise can understand exactly which piece of content or dataset is labeled incorrectly and fix accordingly.”

Of course, no technology’s perfect, and Hyro’s likely isn’t an exception to the rule. But the startup’s sales pitch was enough to win over dozens of healthcare networks, providers and hospitals as clients, including Weill Cornell Medicine. Annual recurring revenue has doubled since Hyro went to market in 2019, Krush claims.

Hyro’s future plans entail expanding to industries adjacent to healthcare, including real estate and the public sector, as well as rounding out the platform with more customization options, business optimization recommendations and “variety” in the AI skills that Hyro supports.

“The pandemic expedited digital transformation for healthcare and made the problems we’re solving very clear and obvious (e.g. the spike in calls surrounding information, access to testing, etc.),” Krush said. “We were one of the first to offer a COVID-19 virtual assistant that deployed in under 48 hours based on trusted information from the health system and trusted resources such as the CDC and World Health Organization …. Hyro is well funded, with good growth and momentum, and we’ve always managed a responsible budget, so we’re actually looking to expand and gather more market share while competitors are slowing down.”

Hyro secures $20M for its AI-powered, healthcare-focused conversational platform by Kyle Wiggers originally published on TechCrunch

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