US futures point to a slight dip upon opening today as COVID-19 cases increase along with further shutdowns across the United States. The markets have been setting records lately and I think red days are healthy for the market, especially with the status of our underlying economy. Like so many intelligent long-term investors say, “match your asset allocation with your risk profile” to ensure you are reaching your investment goals depending on your age, risk tolerance, and target retirement date.
Market Correction 2021?
Am I the only one who sees the market as being overvalued right now? Many quality stocks are at their 52-week high, I know “real” economic return happens in the long-run and we see the growth via the output of economics production through goods and services. I think we are due for a market correction anytime now. Again, make sure you have your asset allocation set to match your risk profile!
Federal Reserve – Bank Stress Tests
The Federal Reserve Board announced on Friday that results from its second round of bank stress tests will be released on Friday, December 18, at 4:30 p.m. EST.
Stress tests help ensure that banks have adequate capital to absorb losses so that they can lend to households and businesses even in a severe recession. For this second round of stress tests, large banks will be tested against two scenarios, each featuring a severe recession to assess their resiliency.
Earlier this year, the Board’s first round of stress tests found that large banks were well capitalized. Nonetheless, in light of the economic uncertainty, the Board is conducting this second round to further test the resiliency of banks.
Banks with more than $100 billion in total consolidated assets are subject to the Board’s stress tests.
There is a lot going on right now between vaccine developments, shutdowns, rising COVID-19 cases, uncertainty on who will become the next POTUS and what that will mean for GDP and the overall economy. Will tariffs be reversed, will Biden pose deregulations and globalism? All of these questions will be answered in my next market update!
Founded in 1978, the Home Depot (HD) is the leading North American home improvement retailer, with over 2,200 stores, including about 184 stores in Canada and 110 in Mexico. HD sells to both the do-it-yourself and professional contractor markets.
Home Depot, HD: Fits my risk profile and growth strategy. A long-term stock that has performed well overtime with a strong dividend yield and beta that matches market performance (less volatility). The RSI shows a slightly overbought stock however the fundamentals are fantastic, other than being overvalued at the moment.
Historical Performance: Strong
Dividend yield: 2.17%
5-year Return: 120.71%
Intuition: I used to work at this company throughout college and I can tell you that their gross profits are outstanding along with expense and shrink management. I see the Home Depot as a recession proof industry moving forward and when the virus is over sales will only continue to increase throughout the years.
McDonald’s Corporation. A true international powerhouse of a fast food chain. How could this company fail you may ask? It has proven to be a recession proof stock. You see it. The lines lined up to the road to get a Mcdouble. But let us explore the fundamentals and stock analysis of McDonalds corporation stock as we know it. What can we infer about the future growth of this company as we presume the company’s financials are healthier than the food it makes. Let’s plug this in to the 5 Component Theory and see what we get.
McDonald’s is the largest quick service restaurant company (QSR) in the world as measured by sales, with more than 37,000 restaurants in over 100 countries. The company’s restaurant system is mostly franchised and includes ownership or control of restaurant real estate sites.
Merrill Lynch Company Description
5 Component Theory: MCD
Historical Performance: Strong
Dividend Yield: 2.45%
Fundamentals: Healthy Financials
Intuition: Strong fundamentals and historical performance with a beta of under 1.0 makes MCD an aggressive growth stock.
I entered a position in MCD during the famous 2020 stock market crash back in March. Now the stock is soaring and the underlying fundamentals will continue to push MCD toward future growth in my opinion. A recession proof stock, MCD is a real winner.
Boston-based American Tower is the largest global owner and operator of wireless and broadcast communications towers. The American Tower portfolio includes approximately 170,000 sites in the U.S., Latin America, India, Europe, and Africa. The core business for AMT is leasing space on its wireless towers primarily to wireless carriers, government agencies and broadband data providers.
Yahoo Finance Description
Bullish 5-year returns and a Beta of 0.30 make for a sound investment for the long-run. The Dividend Yield is just an added bonus. A 14-day Relative Strength Index of approximately 49 indicates the stock being undervalued. With the lease space to wireless carriers and communications companies the stock is here to stay for the long-run. The monopolized nature of this industry and company checks off the box for my intuition component in the 5-Component Theory.
I am going to begin a fixed-purchasing schedule of buying this stock and keep a close eye on the research of the fundamentals along with the analysis of the stock itself. I believe it is an undervalued stock that provides steady income through a dividend yield and is less volatile than the market.
Apple Inc. (AAPL) designs, manufactures, and markets consumer electronics and computers, and has developed its own proprietary iOS, Mac OS, TvOS and Watch OS operating systems and related software platform/ecosystem. Revenues are principally derived from the iPhone line of smartphones, Services, hardware sales of the Macintosh family of notebook and desktop computers, iPad tablets, and wearables.
Merrill Lynch Company Description
If you look around you see Apple products everywhere ranging from handheld smartphones to tablets and wearables. I had been an Apple user since the first generation smartphone, and I switched to Samsung last month. Let’s first take a look at Apple’s financial performance overview otherwise known as the fundamentals:
Strong fundamentals including Gross Profit Margin and Long Term Debt to Equity Ratio, efficient operating ratios and fantastic return on invested capital.
Stock Analysis Overview– 5 Component Theory
52 Week Range: $53.15 – $137.98
Dividend Yield: 0.68
Historical Performance: (+314.61%) Past 5 Years
Michael’s Rating: A Buy and Hold. This stock has strong historical performance and fundamentals to support the business initiatives. With the large market share and customer loyalty Apple is here to stay. The Relative Strength Index of roughly 61.35 indicates the stock is closer to being overbought or overvalued. This has no bearing on its long-term performance however. The beta of 1.35 indicates that the stock is more volatile than the market, so Apple poses more risk but greater reward. This is a perfect stock for someone who is 30+ years away from retirement.
*This is not financial advice nor am I a financial advisor
The stock market is on fire! Let’s just take a moment to appreciate the real return that the markets have to offer over the long-term. The US Stock market has been retiring millions and millions of people every day all over the world.
Check out US Futures for today 12/1/2020, they point at a 200+ point increase across the benchmark indexes. News of the vaccine has investors confident and flooding the market.
Financial analysts across the globe spend hours researching securities and have formulas for calculating risk and return. I have been investing in the US Stock market since 2015 and have been developed a 5 component theory for analyzing individual stocks and funds. This theory takes into consideration the most important factors of stock performance and risk. It is a quite simple theory and when put in to practice will yield the returns you deserve. The fund strategy is all based on risk mitigation and capital appreciation.
This data tells me whether or not a security passes the risk tolerance test. So far my investment portfolio is up over 12% for my Roth IRA and 6.50% for my individual investment account. I plan to increase my risk tolerance levels to maximize growth during my 30 year investment career. My investment strategy consists of holding passively managed and open-ended index funds along with carefully analyzed growth stocks, with a small percentage allocated toward fixed income in the form of long-term treasury bond index funds. I have a mix of small cap, mid cap, and large cap index funds along with the S&P 500 to create a “Total Market Index Fund” and capture the total US stock market growth.
The 5 component theory was created in 2019 and has been the driving force behind the “Main Fund” which is my individual investment account via the Fidelity Investments platform. A security must pass a certain level of criteria before executing a buy and booking a place in the main fund. Below are the five components:
Financial markets dipped on Tuesday morning as COVID cases surge across the United States. Positive vaccine progression news has fueled financial markets in the US over the short term and the benchmark indexes have hit record highs in recent days. Today the dow is currently down -300 points and below is the NASDAQ and S&P 500:
Red days are healthy for financial markets and your portfolio. The indexes rise year after year and retire millions and millions of people each year. The long-term is where real return happens. Overall more investors are more positive about entering the market and we are seeing the real possibility of a vaccination. The October Jobs Report can be found in my earlier post on politics.
President Trump will finish his term strong until the results become official. If results hold, I’m gutted, however thrilled to see one of the world’s greatest and most iconic businessman expand more units in Florida. Here is a picture of me visiting his stomping grounds back in 2017!
Cryptocurrency is hitting record highs, people are terrified! The US dollar is being compromised.
Biden has announced a Covid-19 task force and calls for America to “unite and heal”.
Here’s What I Think Will Happen Under Biden:
Lower GDP from higher corporate taxes and more taxes on the wealthy will cause a decline in the free market. Tariff reversals and trade policy deregulation will lead to the United States being taken advantage of like in 2008-2016. Socialist principles and the Green New Deal. The Green New Deal will cost trillions of dollars and take ages to get pushed through congress.
Michael is a modern day consultant and investor with investments in the US Stock Market, US Government, and cash reserves. Michael’s Individual Brokerage Account is with Fidelity Investments. Michael runs a Facebook group called ‘Fidelity Platform Investors’ where like-minded Fidelity investors gather to share and exchange ideas on investing in financial markets.
Individual Brokerage Account:
FSMAX – Fidelity Extended Market Index Fund – 7.96%
FXAIX – Fidelity 500 Index Fund – 50.31%
FSSNX – Fidelity Small Cap Index Fund – 7.78%
SPAX (Core Holding) – Fidelity Government Money Market – .01%
FNBGX – Fidelity Long Term Treasury Bond Index Fund – 14.23%
My individual brokerage account is comprised of Fidelity Index Funds with a strategy of blending Large Cap, Mid Cap, and Small Cap funds to make a total US Stock Market blend. The funds contain low expense ratios, low turn-over rates making for tax efficient gains in the long run.