M1 Finance Portfolio: Dividend Aristocrats 2020 - Week 46 (August 28th, 2020 - $898.81)

Week 46 - $898.81

Markets finished higher yet again as signs of an economic recovery begin to trickle in, yet many lingering issues continue to persist.

Total Report (Since October 11th, 2019)

Positive Performing Sectors
1. Materials (+34.83%)
2. Consumer Discretionary (+33.56%)
3. Industrials (+25.68%)
4. Consumer Staples (+21.98%)
5. Healthcare (+18.47%)
6. Financials (+6.97%)

Negative Performing Sectors
7. Information Technology (-7.71%)
8. Communication Services (-10.02%)
9. Real Estate (-13.45%)
10. Utilities (-14.18%)
11. Energy (-21.41%)

Weekly Report (August 28th, 2020)

Positive Performing Sectors
1. Consumer Discretionary (+2.93%)
2. Materials (+2.62%)
3. Financials (+2.61%)
4. Real Estate (+2.57%)
5. Information Technology (+2.36%)
6. Industrials (+2.34%)
7. Healthcare (+2.21%)
8. Consumer Staples (+1.44%)
9. Communication Services (+1.19%)

Negative Performing Sectors
10. Energy (-0.01%)
11. Utilities (-1.45%)

GICS Sector Performance Ratio - Balanced: From 1:10 (9.09%) to 9:2 (81.82%)

Review

Recent trends continue to point towards a steady climb in both stock valuations and economic growth. Consumer spending is increasing, jobs are returning, and businesses are opening back, backed by the Federal Reserve's commitment to support the economy by allowing inflation to run above its 2% target. Yet despite these positive trends, concerns remain for much of the pandemic-driven economic recession. Cases of new COVID-19 infections continue, although its daily trends have lessened over the weeks. Progress on testing, treatments, and a vaccine for the coronavirus remains steady, but the unpredictable nature of the virus remains constant, particularly concerning the possibility of reinfections with recent news. Furthermore, some of the reported unemployment numbers are turning permanent, a worrying sign as millions continue to file for unemployment on a weekly basis.

Is it reasonable to assume that the stock market will continue to rise? It depends on the economy. Should the positive trends of an economic recovery persist in the future, it is very likely the stock market will likewise reflect that trend long-term. The most important issue thus far is seeing a return to normalcy in economic activity. If that fails to happen by the end of the year, then it can be surmised that a slump in stock prices will occur in response to the now-overvaluations set by the stock market during the pandemic crisis. It would then be wise to stay cautious of the current valuations as the market attempts to stay ahead of the current economic situation. Rebalancing portfolios could help shield investments from potential market volatility in the future, but even this cannot fully protect investments from tanking valuations when the economy itself is suffering.

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Last Week's Update (August 21st, 2020)
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M1 Finance Portfolio: Dividend Aristocrats 2020 - Week 45 (August 21st, 2020 - $856.74)

Week 45 - $856.74

The S&P 500 broke new record highs in the midst of an pandemic-driven economic recession, although whether this trend will continue remains in question.

Total Report (Since October 11th, 2019)

Positive Performing Sectors
1. Materials (+29.16%)
2. Consumer Discretionary (+27.20%)
3. Industrials (+20.32%)
4. Consumer Staples (+19.00%)
5. Healthcare (+13.47%)
6. Financials (+1.42%)

Negative Performing Sectors
7. Utilities (-11.53%)
8. Communication Services (-12.75%)
9. Information Technology (-12.91%)
10. Real Estate (-18.65%)
11. Energy (-21.96%)

Weekly Report (August 21st, 2020)

Positive Performing Sectors
1. Consumer Discretionary (+2.05%)

Negative Performing Sectors
2. Consumer Staples (-0.42%)
3. Information Technology (-0.63%)
4. Healthcare (-0.73%)
5. Industrials (-1.03%)
6. Communication Services (-1.05%)
7. Materials (-1.13%)
8. Real Estate (-1.53%)
9. Utilities (-1.84%)
10. Financials (-3.46%)
11. Energy (-4.62%)

GICS Sector Performance Ratio - Balanced: From 8:3 (72.73%) to 1:10 (9.09%)

Review

The S&P 500 reached all-time highs as stock valuations climb further up as investors look forward towards future economic growth in the midst of a recession. Yet strangely enough, the stock market rally had also marked the shortest bear market in history at only 33 days. Double-digit unemployment and growing numbers of COVID-19 infections still remain, but the improving conditions outlined by company reports suggest that the market shock caused by the shutdowns had significantly worn off since the stock markets hit bottom in March.

Will this upward trend likely continue? For the short term, yes. However the long term must eventually match with the true condition of the economy as it stands. Stock markets may be forward-looking, but those predictions must eventually come to bear with reality at some point. Should the economy fail to sustain the economic recovery into next year, it can be expected that another drop in valuation would occur. This is evident by how income-generating stocks such as the Dividend Aristocrats are under-performing compared to its peers in the S&P 500 in terms of capital gains. Dividend-based stocks tend to follow the economy more closely than growth-based stocks due to the inherent nature in which their gains are respectively made. Growth stocks do not have to rely on true revenue value to generate gains from its current valuations. Dividend stocks must.

In such case, how is it possible that the Dividend Aristocrats outperform the S&P 500 in the long term? Simply put, Dividend Aristocrats rely on the undervaluation of stocks during bear markets. Because gains are generated from dividends per share as opposed to capital gains from selling shares, acquiring more shares allow Dividend Aristocrats to build momentum on their own success. Adding to the fact that these gains are always realized means profits are always locked in for the shareholder of those dividend stocks, keeping them safe from the price volatility of the stock markets. Even if there were to be another significant dip in valuations in the near future, reliable dividend stocks kept long-term should eventually outperform most growth stocks in the S&P 500, regardless of market conditions.

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Last Week's Update (August 14th, 2020)
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M1 Finance Dividend Aristocrats 2020 Pie: https://m1.finance/quB1JH2k6

M1 Finance Portfolio: Dividend Aristocrats 2020 - Week 44 (August 14th, 2020 - $837.10)

Week 44 - $837.10

After months of economic recession, the stock market continues to climb near the S&P 500's all-time highs.

Total Report (Since October 11th, 2019)

Positive Performing Sectors
1. Materials (+32.65%)
2. Industrials (+23.59%)
3. Consumer Discretionary (+22.95%)
4. Consumer Staples (+20.50%)
5. Healthcare (+15.64%)
6. Financials (+9.32%)

Negative Performing Sectors
7. Utilities (-7.93%)
8. Communication Services (-10.90%)
9. Information Technology (-11.95%)
10. Energy (-13.50%)
11. Real Estate (-16.23%)

Weekly Report (August 14th, 2020)

Positive Performing Sectors
1. Materials (+3.47%)
2. Energy (+2.78%)
3. Consumer Discretionary (+2.61%)
4. Industrials (+2.60%)
5. Consumer Staples (+0.82%)
6. Healthcare (+0.77%)
7. Information Technology (+0.73%)
8. Financials (+0.18%)

Negative Performing Sectors
9. Communication Services (-0.01%)
10. Real Estate (-0.19%)
11. Utilities (-1.55%)

GICS Sector Performance Ratio - Balanced: From 9:2 (81.82%) to 8:3 (72.73%)

Review

Stocks are poised to break the S&P 500's record highs as valuations climb further up, even as an economic recovery is anticipated to take longer than expected for activity to return to normal levels.

Such climbs in stock valuations highlight the fundamental differences between the stock market and the overall economy. Stock markets are forward-looking. The economy is backwards-looking. Stock markets only reflect what investors are willing to pay to own shares of companies that are listed in the stock exchange. The economy encompasses everything, particularly small businesses. As a result, the stock market will often deviate from the realities of the economy, illustrated by the continuing increase in stock prices despite evidence to the contrary that the economy will not rebound to previous levels before the pandemic crisis as quickly as believed. The stock market is anticipated to experience volatility before any signs of stability surfaces, and that will definitely become the case as the race for the COVID-19 vaccine continues.

Thus, it is wise to be wary of overvalued stocks as the year comes close to the fourth quarter. While an economic recovery is inevitable, the speed at which it will recover can never be predicted. The best course of action would be to continue investing as normal and seek out undervalued, good-quality businesses with strong and sound fundamentals. If a company had done well in the past and are still doing well now, then it is all the more reason to continue to believe the company will continue to perform as their results have proven.

The Dividend Aristocrats 2020 portfolio has been updated. 2 new companies have been added:

Industrials (2)
Carrier Global (CARR) - N/A
Otis Worldwide (OTIS) - N/A

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Last Week's Update (August 7th, 2020)
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M1 Finance Dividend Aristocrats 2020 Pie: https://m1.finance/quB1JH2k6

M1 Finance Portfolio: Dividend Aristocrats 2020 - Week 43 (August 7th, 2020 - $801.08)

Week 43 - $801.08

Stock gains climbed from news of better-than-expected economic data as the US continues to recover its job losses, but with the pandemic still ravaging the country it remains uncertain whether this trend will continue.

Total Report (Since October 11th, 2019)

Positive Performing Sectors
1. Materials (+24.91%)
2. Consumer Staples (+19.03%)
3. Industrials (+18.08%)
4. Consumer Discretionary (+17.43%)
5. Healthcare (+14.16%)
6. Financials (+9.15%)

Negative Performing Sectors
7. Utilities (-4.80%)
8. Communication Services (-11.19%)
9. Information Technology (-13.89%)
10. Real Estate (-16.30%)
11. Energy (-19.15%)

Weekly Report (August 7th, 2020)

Positive Performing Sectors
1. Information Technology (+3.81%)
2. Industrials (+3.51%)
3. Energy (+3.33%)
4. Real Estate (+3.00%)
5. Financials (+2.96%)
6. Materials (+2.87%)
7. Consumer Discretionary (+2.36%)
8. Consumer Staples (+1.67%)
9. Communication Services (+1.50%)

Negative Performing Sectors
10. Utilities (-1.14%)
11. Healthcare (-1.47%)

GICS Sector Performance Ratio - Balanced: From 5:6 (45.45%) to 9:2 (81.82%)

Review

Even with positive news on the July jobs report that exceeded expectations, longer-term issues still remain for an economic recovery in the US. Talks for new stimulus has stalled in Congress, and with no more funding for the Paycheck Protection Program, an major eviction crisis is imminent.

The jobs report is only illustrates the number of jobs gained in the US, and without any figures to reasonably compare it to, it is little more than a snapshot of what businesses are doing in light of the pandemic-related economic crisis. Jobs are coming back because they must. Many businesses depend on an on-site workforce to push out products and services. Economics is dependent on two main components to function: the producer and the consumer. Businesses provide a good or service and the consumer credits the producer in exchange for those goods and services. Even as businesses begin to reopen and restaff, the lack of consumer spending is holding back a full economic recovery. There remains no real incentive for consumers to risk their credit on luxuries when there are more pressing matters to resolve, such as rent. Businesses are hiring and jobs are slowly coming back, but that money is not circulating as well as it should be.

The economic recovery will be slow and likely painful for many. Without the full support of the government to back its citizens to effectively allocate resources back into private enterprises, the economic downturn will last longer than anticipated. Stocks are driven up by "better-than-expected" outcomes, but expectations are only estimates. They are not by any means a true reflection of the state of the economy. Stocks might very well be overvalued given the current economic situation, but once a vaccine is made and the economy returns to normal, only then will the true state of the economy be revealed.

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Last Week's Update (July 31st, 2020)
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M1 Finance Dividend Aristocrats 2020 Pie: https://m1.finance/quB1JH2k6

M1 Finance Portfolio: Dividend Aristocrats 2020 - Week 42 (July 31st, 2020 - $768.29)

Week 42 - $768.29

New quarterly data for GDP growth displayed the expected downturn since the coronavirus, the sharpest so far, yet the week finished slightly positive with big tech companies leading remarkably in quarterly earnings.

Total Report (Since October 11th, 2019)

Positive Performing Sectors
1. Materials (+18.79%)
2. Healthcare (+18.13%)
3. Consumer Staples (+15.59%)
4. Consumer Discretionary (+12.60%)
5. Industrials (+10.78%)
6. Financials (+3.03%)

Negative Performing Sectors
7. Utilities (-2.50%)
8. Communication Services (-14.53%)
9. Information Technology (-22.00%)
10. Real Estate (-22.32%)
11. Energy (-25.85%)

Weekly Report (July 31st, 2020)

Positive Performing Sectors
1. Real Estate (+4.22%)
2. Consumer Discretionary (+2.52%)
3. Utilities (+2.27%)
4. Consumer Staples (+1.23%)
5. Communication Services (+0.06%)

Negative Performing Sectors
6. Healthcare (-0.31%)
7. Industrials (-1.51%)
8. Materials (-2.64%)
9. Financials (-2.68%)
10. Energy (-4.73%)
11. Information Technology (-8.26%)

GICS Sector Performance Ratio - Balanced: From 8:3 (72.73%) to 5:6 (45.45%)

Review

As the coronavirus crisis worsens and drive a further decline in economic activities from shutdowns, there is one sector within the economy that has managed to weather the storm and even thrive in such environment. The Technology Sector has by far been practically untouched since the beginning of the crisis, and with more people staying indoors and travel dissipating, demand for online services has only grown. This has made investors euphoric on big tech investments such as Netflix, Google, Apple, and many others, believing that such investments would be soundly capable of weathering any economy downturn.

However one should be wary of investing into the Technology Sector purely on this basis. While this particular sector has the greatest potential for growth, and thereby a high return-on-investment, it is also one of the most competitive. The ease of entry and the vast amount of existing competition means consumer confidence and satisfaction are paramount to business in the tech sector. Just as easily as it is to obtain customers to do business with, those customers can easy flock to competitors as soon as the produce or service is not to their liking. Other sectors do not have this emphasis as much as the Technology Sector does, as their inherent business model confines them to the physical limitations of the real world.

Nevertheless, the Technology Sector remains a strong performing sector overall. It is after all the sector in which nearly all technological innovation is derived from, driving both business and consumer activities higher thanks to their ease of use and high scalability. That is why the Technology Sector has been generally centered around growth stocks. Much of a tech business's resources are reinvested to help scale the business further for greater gains, and thus do not focus as much on dividends as more stable sectors such as Utilities and Communication Services might.

It may be best to continue investing in the more undervalued companies outside of Technology, in such case. The coronavirus crisis has taken a major toll on businesses that rely on some sort of foot traffic to keep their operations afloat. If one seeks greater gains from higher passive income, it may be better to invest capital in those assets instead.

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Last Week's Update (July 24th, 2020)
M1 Finance Platform Referral Link: https://m1.finance/UIl_N9XNA_CO
M1 Finance Dividend Aristocrats 2020 Pie: https://m1.finance/quB1JH2k6