Peter C. Cavelti

A New World

Covid-19 has made the world into a new place. Not just “out there”, but in our homes and workplaces. From here on, we’ll be doing many things differently, maybe for a few months and maybe for decades to come. It’s important to understand how we got here.

Against All Expectations

In this issue, we review a year in which markets—against all expectations—continued to advance, against an exceptionally challenging background. We also look ahead at 2020 and beyond, considering key political, economic and social issues, both at home and globally.

Disruption Everywhere

America’s executives and board members have sold a combined $19 billion of stock in their companies through to mid-September. If we annualize that, it puts insider sales at a two-decade high.

Command and Control

Once again, predictably and on time, the U.S. Federal Reserve and the European Central Banks, have shifted gears. After talking tough for most of the past year, the world’s key monetary agencies have softened their stance.

The Narrative Changes

As I wrote three months ago, the stock market has for some time been a risky place to be. Yet, with few exceptions, financial columnists, the talking heads on television, and the major investment firms sang the same chorus—the economy, they chirped, is doing just great and a major correction is months, perhaps years, away.

Unstable World, Robust Markets

It’s ten years since Lehman Brothers collapsed and the financial world unravelled. We entered the crisis with cash reserves that seemed alarmist, but helped us weather the storm and be able to stock up on quality equities after their precipitous drop.

Events, Trends and Catalysts

For now, the prevailing narrative persists: motivated by the belief that central banks won’t allow a meaningful correction in equities and that there are few attractive places for money outside the stock market, investors feel that broad overvaluation is justified.

The Elusive Correction

How risky is the broad stock market? It depends how you look at it, but there is plenty to worry about. To begin with, valuations are high by any yardstick; in the U.S. for example, the S&P500 cyclically adjusted price-to-earnings ratio has only been higher once—in the late 1990s.