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September 25, 2020 at 02:59 PM
(Image: Shutterstock)
As we head into the fourth quarter, making sense of the evolving macro environment is critical for advisors who are looking for opportunities to assess or rebalance their equity portfolios to set clients up for growth.
While initial jobless claims remain stubbornly high and industries such as entertainment and travel continue to struggle, I am still optimistic about our economic outlook. The recovery is uneven, but there are several bright spots on the horizon that are influencing my portfolio choices.
Here are 4 key macro factors I’m watching right now:
1. Mergers & Acquisitions Activity
To truly understand what’s happening in business and the economy, listening to what CEOs say is not enough — you have to watch what they are doing and how they are spending their capital.
The fact that so many are choosing to put their cash toward M&A, instead of hunkering down and saving it, means they are feeling more confident about the overall state of liquidity in the economy and envision opportunity in the foreseeable future.
Just look at the last few months: M&A activity skyrocketed in the summer, starting on July 6, with Warren Buffett’s nearly $10 billion acquisition of natural gas assets and debt from Dominion Energy Inc. Then, over the course of July and August, we saw $256 billion in M&A deals. In August alone, there were nine transactions announced worth over $5 billion — the highest number of M&A deals in any month in history.
While the upcoming election remains a wild card for corporate taxes, U.S.-China relations and other major market factors, the recent boost in M&A activity is a sure sign of better visibility and business confidence.
2. Manufacturing & Retail Sales Data
The manufacturing industry has seen a V-shaped recovery in the short term, but it’s interesting to note that the Federal Reserve of New York’s September Empire Manufacturing Index showed a 13.3-point monthly increase, to the second-highest level since November 2018.
In addition, the Federal Reserve Bank of Richmond Manufacturing Index reached a 2-year high and the Philadelphia Manufacturing Index posted its fourth consecutive monthly gain as well. These are important data points because the data is showing that we’re not just coming out of a low in March; manufacturing is accelerating from where it was two years ago.
I’m also seeing bright spots in retail sales. Nominal retail sales in the third quarter are on track to surge at a 61% sequential annualized rate, with real consumer spending up 37%. We have more than recouped retail sales from the March/April lows, and are on track to be above even the January pre-COVID crisis lows.
Stephanie Link joined Hightower in June as chief investment strategist and portfolio manager. She leads Hightower’s Investment Solutions group, which provides outsourced chief investment officer (OCIO) services, model portfolios, separately management accounts (SMAs), investment research and due diligence for Hightower advisors. Prior to joining Hightower, Link was the senior managing director and head of global equities research at Nuveen. Follow Stephanie Link on Twitter: 