This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.
Richard Bernstein Advisors
Oct. 29: Investors become myopic during bubbles. They believe the universe of attractive investment opportunities is small and growth can be found only in a few select sectors. As we’ve repeatedly highlighted, it is exactly that narrow-mindedness that presents opportunities because investors ignore the broad range of potential investments outside the bubble.
Today’s bubbles are following that precedent. Investors are squarely focusing on technology, innovation, disruption, cryptocurrencies, and housing, but very little else. They seem enamored with vacations in outer space and electric vehicles, yet ignore the dire need for improving U.S. logistical and electrical infrastructure.
Ironically, many equity markets around the world not known as hotbeds of innovation and disruption are outperforming
index so far during 2021. Our guess is most investors are completely unaware of the fundamentals supporting these markets’ outperformance.
—Richard A Bernstein and Team
When Will GDP Perk Up?
THINK Economic and Financial Analysis
Oct. 28: It’s clear that the U.S. economy entered a soft patch in the third quarter as the Delta variant of Covid spread across the country and led to heightened caution among households. The steep declines in restaurant booking and travel were a prelude to today’s soft 3Q GDP reading. Thankfully, Covid case numbers have fallen sharply since peaking in mid-September and we are seeing a rapid rebound in the willingness of consumers to get out and about and spend money.
We are confident that the fourth quarter will experience much better growth despite concerns surrounding the rising cost of living. The combination of strong labor demand amid a dearth of supply will keep incomes rising while households have extra resources to weather this storm due to the fact that nationally their wealth has increased by more than $26 trillion since the end of 2019.
Adding in anticipated government spending on infrastructure and social policy, more corporate capital expenditure, inventory rebuilding, and the return of foreign visitors in significant numbers means we feel the economy can expand by more than 4.5% next year.
—James Knightley, Padhraic Garvey, Chris Turner
Oct. 28: Florida’s strong economic growth is expected to continue well into the decade. After expanding 5.9% this year, Florida’s real GDP growth is expected to outpace the nation in the next couple of years, reflecting stronger population growth and the influx of higher-value-added jobs in technology, life sciences, and specialty finance. Employers are expected to add 273,000 jobs in 2022 and a whopping 300,000 jobs in 2023. Florida’s unemployment rate is expected to average 4.2% in 2022 but end the year below 4%. The strength in employment and income growth is expected to draw more job seekers to the state, which will also continue to attract large numbers of retirees, fueling home building and commercial construction…
We expect Georgia’s economy to gain momentum this fall and in 2022. After expanding 5.8% this year, Georgia’s real GDP growth is expected to outpace the nation in the next couple of years, reflecting stronger population growth and the influx of higher-value-added jobs in technology and life sciences. Manufacturing remains important in the state, particularly the automotive, aerospace, floor-covering, and poultry-processing industries. The Port of Savannah is another key growth engine and continues to process record volumes of container traffic, which is supporting strong growth in transportation and warehousing in Savannah and Atlanta. The Port is scrambling to add more container storage space amid a scarcity of available warehouse space in the surrounding area, despite rampant development this past decade.
—Mark Vitner, Charlie Dougherty, Nicole Cervi
Housing Market: Still Strong
Oct. 26: Total new home sales rose to an annualized rate of 800,000 units in September, topping the consensus forecast of 759,000 units and our forecast of 787,000 units, the highest forecast in any of the surveys we participate in. At the same time, prior estimates of sales over the June through August period were revised lower, with an average monthly sales rate of 699,000 for the three-month period compared to prior estimates of 718,000 units. The downward revision to August sales was particularly harsh, with sales now reported at 702,000 units compared to the initial estimate of 740,000 units (annual rates). More often than not over the past several months, the revisions have been to the downside, suggesting that one not get too attached to the initial estimate of September sales.
Even aside from potential revisions, there is less to the September headline sales number than meets the eye. Sales in the South were much stronger than we anticipated and what was suggested by the September data on single-family housing permits and starts, which bore the effects of Hurricane Ida. At the same time, sales in the Midwest and West regions were well below what was implied by the September construction data. Clearly, the market for new homes is not functioning normally after months of builders operating under self-imposed sales caps, while constraints on materials supplies have weighed on both starts and completions. Still, while there are signs that demand has softened a bit relative to earlier in 2021, that doesn’t imply that demand has dried up, and builders are still contending with sizable backlogs of unfilled orders.
Although the prospect of higher mortgage interest rates looms over the market, we expect sales to increase in coming months. But we expect the pace at which sales increase to remain somewhat uneven largely due to lingering supply-side constraints.
—Richard F. Moody
Embracing Dividend Growth
Insights and Commentary
Washington Crossing Advisors
Oct. 26: We believe companies with a history of increasing dividends provide a good starting place in a search for fundamentally strong and growing companies. Steady dividend growth often follows consistent profitability and shareholder-focused management. A dividend growth perspective looks beyond today’s yield and considers other factors, such as quality, growth, risk, and value. A track record of dividend increases can be viewed as a tangible signal by a company’s management that they are both willing and able to boost a payment to shareholders. This commitment suggests quality fundamentals currently, with an expectation of continued improvement into the future. In short, this suggests a consistently high level of profitability with relatively low leverage.
A recent study by Ned Davis Research, shows that return was higher and volatility lower among companies that raised their dividends compared with ordinary dividend payers (that may or may not have raised the dividend), companies that do not pay dividends, and especially dividend cutters for the period of January 1973 to December 2020. As we have shown in other research notes, rising dividend strategies outperform high dividend strategies as the latter effectively function as bond substitutes.
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