Volatility is the name of the game in the markets lately. The S&P 500 index finished last week broadly unchanged but traded in a 235-point range as investors struggle to decipher the effects the Corona Virus might have on companies operating performance. Volatility like this can be very unnerving for a retail investor, and it is not always clear how to invest in choppy markets.
One place to turn is to Finscreener.com’s Stock Screener tool which allows users to screen for stocks that meet defined criteria. Users start by defining factors such as market, capitalization, sector, industry, and country. Additional screens exist for a range of investment factors such as a stock’s fundamentals, profitability, valuation, revenue, dividends, performance, etc. The output from this screening tool can be broken down for analysis and viewed based on various categories such as stock performance, compound growth rates, profit margins, dividends, valuations, and rankings.
Consumer Defensive Stocks
One area that is generating interest in the current environment is the Consumer Defensive sector. As people cut back on hotels, travel, and leisure activities, the consumer defensive sector could be a temporary haven. But not all consumer defensive stocks are winners. That is why Finscreener.com’s tool is so powerful. The screener can help investors find the stocks that, on average, have a better chance to outperform.
If we start by selecting Stock Screener, we can begin to filter down names that may present investment opportunities. For example, we start with the S&P 500 index and select large and mega-cap stocks. Under the “sector,” we choose Consumer Defensive. From here, we can sort by the stock’s year-to-date (YTD) performance to see who has held up under pressure so far in 2020. A final filter that can be applied is the dividend yield, in this case, between 3-10%. We are looking for companies whose stock prices are down a bit, but still have the prospect of paying a dividend.
Our filter gives us five stocks that are worth some additional analysis. Kimberly-Clark (NYSE: KMB), J.M. Smuckers (NYSE: SJM), Campbell Soup (NYSE: CPB), Philip Morris (NYSE: PM) and General Mills (NYSE: GIS). These companies could offer outsized total returns if they maintain a dividend payment and their current YTD price outperformance trend continues. It is probably not a coincidence that 4 of the five names are in the consumer-packaged goods industry. In the wake of the Corona Virus scare, people may be turning to packaged food that people can store for extended periods.
In addition to the "pandemic," the interruption of the uptrend of the US dollar (USD) was another development of the fateful year 2020.As shown in Figure 1, the USD index lost the uptrend - rising highs and rising lows - that began in the 2008 crisis, when the Lehman Brothers investment bank failed in September 2008.This index was created in March 1973, with 100 points, following the termination of the Bretton Woods agreements in 1971.Until that year, the USD, the world's reserve currency (it still maintains this status today), was convertible into ounces of gold (35 USD corresponded to one ounce of gold).
Since then, the US currency has become a fiat currency, i.e., it is no longer convertible into commodities and is only legal tender.
By law, no merchant can refuse this currency in a commercial transaction.To measure the value of the USD, a basket of currencies with different weights is used.Currently, this basket is made up of six currencies, in which the euro (EUR) is the most relevant currency, with a weighting of over 50%:Euro (EUR; 57.6%)Japanese yen (JPY; 13.6%);British pound (GBP; 11.9%);Canadian dollar (CAD; 9.1%);Swedish krona (SEK; 4.2%);Swiss franc (CHF; 3.6%).Until 1971, currency was issued against gold, i.e., the US Central Bank, the Fed, for X tons of gold, issued Y USD.
That is, its balance could only increase if there were gold reserves in its coffers; a greater quantity of Gold corresponded to a greater quantity of dollars and vice versa.From 1971 onwards, the issuance of foreign exchange is done through the purchase of government bonds.
How does it work?In a simplified form (without considering the fractional reserve system of commercial banks and their role as intermediaries in the bond market), it consists of the following: the US Treasury issues Treasury bonds, let's imagine 1,000 bonds at 10 USD each, maturing in 1 year; the FED issues USD 10,000 and buys these securities from the US Treasury, keeping these assets in its balance sheet.If these bonds involve interest payments, we will assume a rate of 10%, which means that next year the US Treasury will have to pay the FED 1,000 USD as interest and 10,000 USD to repay the loan.Here comes a question:If no one has printed an additional 1,000 USD, it means that there is not enough USD to pay the central bank (FED), the security holder.
How do you solve this problem?Issue more debt, always more, like a pyramid scheme.To keep this monetary system working, the production of new debt must exceed debt repayments.In other words, governments have to permanently sell paper (bonds) to the central bank to keep the monetary system afloat.In conclusion, to print a lot of money, the government has to create an exceptional supply of bonds - financial assets - for the central bank to purchase by issuing money for that purpose; otherwise, it is not possible to increase the amount of money in circulation (simplified explanation, without taking into account the effect of fractional reserves of commercial banks).The current USD index considers the reality of 1973 when countries such as China, Mexico, South Korea, and Brazil did not weigh in world trade, a very different reality today.This year, the USD depreciated considerably against the main cryptocurrency, Bitcoin (BTC), and precious metals: gold and silver.
