| Monday, August 10, 2020 Headlines 1. US markets rally behind industrials and financials 2. Uber and Lyft can't classify drivers as contractors 3. Kodak shares plunge as US holds back loan 4. Fund managers were beaten badly in July 5. Which countries will see biggest GDP surge in Q3? Markets Closed
 Photo courtesy GettyImages/Hannah Foslien/Contributor
Markets Today U.S. markets rallied out of the gate, closing near session highs, but technology shares were not setting the pace as they have in recent weeks. That's strange, given that tech stocks usually love Mondays (see chart below). Industrials, airlines, and financials led the gains, which can be interpreted as a sign of economic optimism among investors.
Boeing (BA) and Nike (NKE) were among the best-performing stocks in the DJIA, rising more than 4% each. Even Caterpillar (CAT), considered to be a bellwether for the global economy, climbed more than 5% as investors anticipate more demand for the heavy-equipment maker outside the U.S.
Earnings season is almost over, and more than 70% of the companies reporting results exceeded analysts' estimates last quarter. That happens every quarter, but not usually by that much. The bars were set very low, and public companies jumped right over them. That doesn't mean the coast is clear by any means, but better-than-expected results are always better.  Chart courtesy BespokeInvestments
Headlines:
 chart courtesy BofA Research
The Pros Missed Badly In July Investing isn't easy under normal circumstances, and 2020 has been anything but normal. Still, mutual fund managers are supposed to be the best in the game, and their job is to beat their benchmarks. For most, that means beating the index their funds are benchmarked against, like the S&P 500 or Russell 2000.
According to data from BofA Research, only around 50% of mutual fund managers beat the S&P 500 in July, one of the best months on record for the index. It was even worse for managers who benchmark against the Russell 1000. Only 28% of fund managers beat that index, registering the worst performance in two years for active fund managers.
You could say that managers should just buy the FAAMG stocks and call it a day, but that's not the way it works. Fund managers have to maintain diversified portfolios that can protect their clients in any market conditions while offering as much upside as possible. Investment companies pour billions of dollars into equity research, marketing, and trumpeting their expertise. But when we have a concentration of just a handful of big stocks making all the gains, fund managers can do little more than watch helplessly as the gains pass them by while they tend to their carefully selected "picks."
The pendulum will swing the other way soon enough, as it always does in market cycles, but clients may not be so patient this time around—especially given all the alternatives there are to active management.  Chart courtesy Schwab
Which Countries Will Bounce Highest? We are just a couple of weeks into the third quarter of 2020, but GDP estimates for developed countries are already coming in. What is becoming very clear is that the countries that locked down the hardest saw both the steepest declines in GDP, but they are also expected to see the strongest rise in output this quarter. That is very apparent in Europe where the U.K., France, and Italy are expected to show double-digit spikes in Q3 GDP. GDP growth in China and the U.S. will be much more muted.
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(chart courtesy YCHARTS)  Shares of MGM are up by over 13.5% after IAC announced it acquired a 12% stake in the resort chain. (IAC is the parent company of Dotdash/Investopedia.) Wynn Resorts' stock price rose by nearly 10% following China announcing its plans to resume granting tourist visas for visitors to Macau, a popular gambling destination.  Of the eight stocks that fell the most today, seven are technology stocks. This includes fintech companies, such as MarketAxess and Fiserv, as well as medical devices manufacturers, like DexCom, Hologic, and Abiomed. The odd one out, SBA Communications, is a real estate investment trust. Word of the Day A benchmark is a standard against which the performance of a security, mutual fund, or investment manager can be measured. Generally, broad market and market-segment stock and bond indexes are used for this purpose. Benchmarks are indexes created to include multiple securities representing some aspect of the total market. Benchmark indexes have been created across all types of asset classes. In the equity market, the S&P 500 and Dow Jones Industrial Average are two of the most popular large-cap stock benchmarks. In fixed income, examples of top benchmarks include the Barclays Capital U.S. Aggregate Bond Index, the Barclays Capital U.S. Corporate High Yield Bond Index, and the Barclays Capital U.S. Treasury Bond Index.  Image courtesy patentyogi.com
Today in History August 10, 1897: Looking for a remedy for his father's rheumatism, a young German chemist named Felix Hoffman synthesized a stable form of acetylsalicylic acid in a laboratory in Berlin. The head of Bayer's pharmacological institute, Heinrich Dreser, lambasted Hoffmann's discovery as "typical Berlin hot air; the product is worthless." Bayer soon named the product "aspirin," and it became the best-selling drug of all time.
David Pilling, "Pill of the Century," The Financial Times, Feb. 13/Feb. 14, 1999.
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Monday, August 10, 2020
Sensing Optimism
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