Who is “TINA” and what has she done to have an industry term named after her, in all caps no less?
The TINA I am referring to is not the Queen of Rock ‘n Roll, Tina Turner, (who was actually born with the name Anna Mae Bullock.) Nor is it Tina Fey, although the comedian’s hit television show 30 Rock did a fine job of mocking a company that was once one of the American blue chip titans in the original Dow Jones Industrial Average. (GE has since been removed from the DJIA in 2018.) No, “TINA” is not a person. It is, in fact, an acronym that stands for “there is no alternative,” said to have originated from the Victorian philosopher Herbert Spencer and later known to be used by former British Prime Minister, Margaret Thatcher, in the 1980s. TINA is now referred to in the world of asset management to explain investors being driven away from fixed‑income investing by paltry yields and into stocks with higher expected returns.
Look no further than the yield on the bellwether 10‑Year U.S. Treasury note, ending the month of September at 0.68%, to explain fixed‑income investor chagrin. Perhaps the only less palatable alternative than locking up capital for a decade at such an uninspired yield is doing so for 30 years in a U.S. Treasury at 1.45%. This skimpy return is unable to keep up with long‑run expectations for the rate of inflation, leaving investors with diminished purchasing power and a negative real return. The Fed has taken dramatic steps to keep the economy afloat by pinning short‑term rates at zero for the foreseeable future, as well as purchasing bonds of nearly every variety. However, the result for savers and conservative fixed‑income investors has been that there is no alternative but to take on some degree of incremental risk to maintain a sustainable rate of return on capital.
|Market Index Returns||Sept 2020||YTD 2020|
|S&P 500 Index||-3.8%||5.6%|
|Russell 2000 Index||-3.3%||-8.7%|
|MSCI EAFE Index||-4.6%||-18.3%|
|Barclays US Agg. Bond Index||-0.1%||6.8%|
|FTSE 3 Mo. T‑Bill Index||0.0%||0.6%|
Stock Market Review & Outlook
New England Leaves, Stocks Turned Red in September
Capital chasing higher expected returns has driven U.S. stocks higher over the past several months. Investors were none‑the‑less reminded in September that there is no free lunch in investing. Higher expected returns come at higher risk.
U.S. stocks pulled back from a lofty trajectory in the final month of the third quarter. High‑flying technology stocks were often pointed to as leading the market lower, but by month end all but two sectors (Materials and Utilities) were lower. Energy stocks were a dreadful drag once again, off by -15% in the month and -48% thus far in 2020. Other cyclical areas of the economy such as Financials and Industrials remain in the red this year. The high dividend payments investors enjoy from Utilities stocks have not been sufficient to pull that sector back into the black for the year either.
Market sentiment seemed to ebb and flow during the month with headlines alluding to any hope of an additional fiscal aid package out of Washington, which has gained no additional traction. U.S. stocks fared modestly better than overseas markets during the month and continue to lead by a wide margin on a year‑to‑date basis.
|S&P 500 Sector Returns||Sept 2020||YTD 2020|
Economic Review & Outlook
Employment and the Economy are Moving in the Right Direction
The U.S. economy has made significant strides to begin to pull out of recession and the abysmal final estimate of Q2 economic growth received last month of -31.4%. Unemployment has come down to 7.9%, well off the 14.7% level at the height of the pandemic lockdowns, but still a far cry from the historic lows of 3.5% from what feels like a lifetime ago, but were actually prevalent earlier this year. Weekly Jobless Claims seem to have hit a sticking point and far too many Americans continue to remain out of work as companies navigate the new normal.
Chart of the Month
COVID’s Trajectory Will Impact How Quickly the Economy Recovers
Change in confirmed cases and fatalities in the U.S.
Source: Johns Hopkins CSSE, J.P. Morgan Asset Management.
7‑day moving average as of September 30, 2020
“Normal” continues to be a moving target in these abnormal times of social distancing and changing virus‑related restrictions. It is hard to imagine a world in which activities of commerce or leisure return to what was once normal without a COVID‑19 vaccine fully available to the general public. While overall virus cases and mortality rates have moved in a favorable direction over the past few months, concerns of resurgence remain front and center.
Please visit our website homepage and click on the COVID‑19 Commentary Special Update box for more on our latest thinking on the economic impact of the Coronavirus.
Our Team is Looking Out for Your Best Interests
We will continue to factor COVID‑19’s prevalence, and the myriad of other risks, into our process as we steward the capital you have entrusted with us. We thank you for your trust and confidence and invite you to reach out to our team to discuss topics raised in this letter or any others on your mind. Be safe and be well.