Market Update 1/26/21

(8:04 AM)

The week is off to an interesting start. Market futures are relatively flat today while oil and gas are continuing to show strength. President Biden signed a "Buy American" executive order yesterday that is supposed to promote a Made in America agenda. The order continues the effort of the Trump administration in increasing America's market share in global manufacturing. Biden remarked that the order includes a provision to require private companies to "justify" to the White House why non-American parts are used for products that require a certain percentage of domestic parts.

The President also said that manufacturing standards like the percentage of parts in a vehicle that is required to be domestic will be reviewed and adjusted to include more and more expensive American made parts. The full extent of executive orders like these is not really visible until we can see the real-life impact. When President Trump took office he gave American companies a timeline to "bring home" cash they have in foreign bank accounts, tax-free and to do so quickly or otherwise it would be taxed. This incentive created an immediate reaction by many companies. President Biden's order is likely to include some measure to trigger an immediate reaction, but we have to wait and see. You will hear the term Honeymoon phase being thrown around soon, and it refers to the period after a new popular President takes office. The approval ratings are good, the market usually feels optimistic, and leaders around the world are eager for new relations. We are officially in the Honeymoon phase.

For us, this means that being cautiously optimistic is the way to go. We are in the midst of earnings season and we are already seeing some great pointers. Some names I really like are Raytheon Technologies, Carrier, and I am warming up to one of the banks, Citi.

Raytheon beat the fourth-quarter estimates and gave decent guidance for 2021 amid an expectation of choppy recovery in Aviation. I think that the defense sector will not see a significant shrinking under the Democrats, specifically because the Senate is about a 50/50 split. Furthermore, I think that Raytheon's technology is state of the art in missile defense and used all over the world, I can see Biden approving sells to countries that possibly would not have happened under the previous administration.

Carrier does not report until February 9th, but my theory behind the stock is the following. I like to start it off with an anecdote, I moved to Florida in March last year and my AC died in the heat of summer. The AC guy came to the house and he explained to me that his business was booming right now because people are upgrading their HVAC systems to make them safer to deal with viruses like COVID-19, they do this by using different types of filters and UV lightbulbs that kill viruses. Safe to say that this will be something many private households and especially commercial buildings like restaurants and malls will be doing to safely reopen..

I am warming up to the banks but have only held Goldman Sachs for any length of time in the recent months. I think that Citi is looking very enticing here because it had decent earnings but has seen a lot of (misplaced) downward pressure last week and as the third-largest bank in the US by assets, I am looking for it to do reasonably well in a low-interest-rate environment where the next rate hike is basically just around the corner.

Thanks,

The Punk Rock Capitalist