What is your all-time favorite Olympic moment? The US Olympic Hockey team’s historic win over the Russians at Lake Placid has to be high on everyone’s list. The gathering of the world’s best athletes for the Winter as well as Summer Games produces unforgettable performances and every possible emotion, as dreams are either realized or shattered by milliseconds.
Despite the huge amounts of money involved, and the ever-advancing science devoted to training and equipment, the final outcome of most events remains largely unpredictable. To me, it is the suspense of watching and wondering who will rise to the occasion to win a gold medal that makes the Olympic Games unique in the realm of athletic competition.
Jim Valvano, in his famous speech shortly before he passed away, said, “If you laugh, you think, and you cry, that’s a full day. That’s a heck of a day.” What does this for us other than the Olympics?
With the Olympics concluded, we are back to the routine. A return, I fear, to an emotional void. Politically, we have moved from extreme polarization to outright frustration. Based on deteriorating ratings, we seem to have little faith in either side, and waning hope that the process will ever change. A country built on high expectations has become one obsessed with finding excuses and blame. We see it in our speed skaters, but also in our public and private sector. Stubbornly slow economic growth, persistently high underemployment, and expanding dependency are symptoms of a country in decline.
What does this have to do with the stock market? That is a question I contemplate daily. Stock prices reflect business fundamentals as well as the collective emotions of investors. Just recently we have witnessed a dramatic fall in stock prices driven by fears of conflict escalation in the Ukraine, only to see the market bounce back sharply when tensions eased.
To be a long-term bull on the US stock market, one must be positive on the long-term prospects for the overall country. For short periods of time these forces can diverge, but they will eventually move toward each other. Despite our current challenges, the potential for the US to lead the world has never been greater, in my view. We have the largest, most stable and innovative economy in the world. In addition, the US has enormous advantages in natural resources, world class universities, and the longest running democracy in history. Yet, we are currently being held back by government overreach and a political process that is clearly broken. But I think this will change over time. In the meantime, business owners are operating in austerity mode, hiring and investing only when absolutely necessary. Unfortunately, this ultra conservative business climate has a depressing effect on the overall economy.
The election in November may foretell future changes in the role and scope of government. Interim elections tend to have relatively low voter turnout and are less important than presidential elections, but this one may carry more significance, in my view.
Meanwhile, the stock market has seemingly recovered from its January correction. The rally in US stocks reflects a flight to quality and continued low interest rates across the global markets. This tailwind could persist until the November election. I suspect the market will continue to be quite volatile, reflecting growing geopolitical concerns.
Digging a little deeper… Approaching the end of the first calendar quarter it is interesting to note the year-to-date performance of the major sectors of the market:
Health Care – up 8.2%
Utilities – up 5.6%
Materials – up 3.1%
Technology – up 2.3%
Industrials – down .4%
Consumer Staples – down 1.1%
Energy – down 1.6%
Telecom – down 4.5%
The key question to ask is whether the leading sectors will continue to lead or will there be rotations into some of the under performing sectors. My sense is that we will see sector rotations throughout the year, primarily driven by an inconsistent economy and unpredictable geopolitical environment. Taking advantage of these rotations will require patience and analytical discipline.
Back to the Olympics… My favorite Olympic moment was Franz Klammer’s sensational downhill gold medal performance on his home course in Innsbruck, Austria. Racing with the weight of a nation on his shoulders, Klammer was the last racer down the mountain and nothing less than a gold medal would have been good enough. Taking an aggressive line down the course, Klammer flirted with disaster several times, but won the race by .33 seconds. It was a magnificent performance by an incredible athlete, at precisely the right time and place.
Can our country produce a Franz Klammer type person in November 2014, or in November 2016? Wouldn’t that be something! An Olympic-like moment, for sure.