SUMMARY. Political risks and reward continued this weeks as money flowed towards assets that may benefit from a Biden win vs Trump. Covid cases are on the rise mostly tied to reopening and resumption of economic activity which may result in a strong US GDP number of over 30% in 3Q20. We are more focused on the falling death rate as an indicator of concern not cases. Vaccine progress and approval of antibody therapies is expected in the next 4-6 weeks which may play a pivotal role in finally lifting state closures/restrictions.
INVESTMENT IMPACT. This week we continue to make significant shifts in model portfolios towards the possibility of Biden victory which may result in considerably slower economic growth thru higher taxes and regulation partially offset with much higher fiscal spending. This may also pressure the US dollar and in turn end the era of extremely low long-term interest rates despite slower growth. As a result, we eliminated exposure to Brazilian market (higher growth is needed there to overcome fiscal constraints) except for one security and instead shifted assets into areas of the US economy which may benefit from this regime change. We added positions to in health care while eliminating our solar position tied to significant appreciation and valuations. In addition, we added to financial services tied to prospects of higher rates. Cash levels are now elevated across models especially in the growth oriented ones as we await the outcome of the election. Either way the magnitude of the recovery & which sectors benefit most may depend on the election outcome, but overall our assumption there will be a reopening & some economic rebound thus our cyclical exposure to companies tied to said rebound.
Our model portfolio performance has been updated on our website as of 10/05/20.
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