Marketline Monthly – May 2020


After a head-snapping rally in April, the market continued its winning ways in May. The Dow marched up by 4.3%, while the S&P 500 led with 4.5%. The NASDAQ outdid both for a second month, rising 6.8%. Stocks have shrugged off all manner of trial and trouble, propelled by massive economic support from the US government.

While the tech sector has led this rebound as well as the markets for a number of years now, late in May and now in June the market is broadening out, with participation by laggards such as airlines, restaurants and hotels. These businesses are widely believed to be permanently damaged, but literally until this week, here they are, rallying their little hearts out. Is the market saying that the ‘slow recovery’ thesis is wrong? The Congressional Budget Office (CBO) issued a forecast saying that it will be a decade before we ‘fully recover’. The CBO has a mediocre forecast record. Meantime, on a small vacation to the southern Oregon coast recently, I stopped counting the number of Now Hiring and Help Wanted signs along I-5 and in towns. Shops, restaurants, and hotels were busy.

Rather than become too enthusiastic, though, it’s reasonable to expect bumps along the way. A comfortably neutral way to handle market timing is simply to sell down stocks that have appreciated significantly and reinvest the sale proceeds over time. This strategy sidesteps market forecasting but gives the advantage of dollar cost averaging. If your repeat purchases happen over several months, some of those months will capitalize on lower prices and you will buy more shares with your money. We selectively reduced Winnebago, Williams Sonoma and CoreLogic recently; other stocks we have repeatedly sold down over long periods of time include Zebra, Microsoft, Apple, and SolarEdge. These provide the cash to diversify portfolios into cheaper names which can reduce risk. A corollary benefit is increased income; stocks we sell frequently carry lower dividend yields than our fresh purchases.

Overseas, developments in Europe have been disappointing. With populations in some countries hit extremely hard and poverty rising, the Eurozone has still had a difficult time coming up with concerted stimulus measures that will help all members. Once again, the downside of the common currency is on display, though granted this region has trade and regulatory problems as well. The FT-SE index of large European companies managed a price return of 3% last month, on top of a paltry return the month before. The last ten years have seen very low returns from international equities – and we don’t see that changing. Asia will be a better bet for the recovery.


Changes in bond interest rates were minor last month, but notably, the long Treasury rose in yield, by quite a bit, ending at 1.41%, up from 1.28%. That said, we don’t expect interest rates to rise measurably any time soon. The Fed is not only committed to low short term interest rates, but the governors are now discussing ‘capping’ longer term rates, presumably by buying securities aggressively if rates rise much on, say, the ten year bond. Welcome to Total Financial Repression!

Sifting through bonds lately, we find that many so-so rated organizations have been able to issue debt at ridiculously low interest rates in ridiculously long bonds. How does 3.7% sound for 92 years? The gradual proliferation of very long bonds make sense from the issuing company’s perspective: why not take advantage of the lowest interest rates we have ever seen? However, they might be sorry for issuing recently – we can see room for even lower rates in the near future.

As we have mentioned in the past, under this regime, investors who wish to fund retirements may need to either save more money or invest in stocks with robust dividends, using bonds only for diversification. Sometime down the road, the portfolio that today might be 60% stocks and 40% bonds may need to be 70% stocks if only for the cash flow and inflation hedge that stocks provide. It will be a major switch – recommending stocks for income – but we could see it happening.


Marketline Monthly is produced by Cascade Investment Advisors, Inc. We specialize in value investing for individuals. We apply our approach across markets, looking for low-priced securities that offer above-average potential. We use imagination and hard work to bring performance and personal service to our clients. To learn more, contact Michelle Rand at 1.503.417.1950 or 1.888.443.9015; email to Our website is A full list of stocks we invest in is available on request; mention of specific securities is not investment advice; such investments may or may not be profitable. Index returns quoted are price only.