A weekly commentary on current events. Follow populyst to receive notification.
This week: Leaving New York City; 1999 market redux; Election 2020.
Please contact us for data or other information concerning the views below.
Leaving New York City
Trends that began in the recent past because of the pandemic may not endure beyond the pandemic. But several factors have combined to persuade some families to leave New York City for good: the new ease of working remotely via Zoom or other, the lower density of the suburbs and resultant slower spread of the virus, and the City’s street protests in June. Some of these families are moving to far away Florida or other states but most are trying to relocate to suburbs and exurbs that are still within the cultural and professional radius of New York City.
A report headlined A Market Unrivaled from real estate agents at Julia B. Fee/Sotheby’s highlights the unprecedented demand in Westchester County (commutable to NYC), Connecticut (commutable from parts of the state) and the Berkshires (not commutable but a popular destination for New Yorkers).
The authors of the report state:
We believe buyer demand will be unparalleled in the months to come. Yet the supply of inventory is severely limited to meet this demand… There are 3.5 million total housing units in New York City, but in Westchester County we have only 377,000, in Fairfield County 375,000 and in Litchfield County 88,000… Demand heading our way now is anything but normal and it will simply not be possible to absorb it all.
New Jersey and Long Island (not covered in the report) are likely seeing similar large levels of demand.
1999 market mania
The stock market has surprised most people by the vigor of its recovery since the lows of late March. As we argued in Why the Market is Rallying, the strength of the indices hides a large divergence in performance between high flying technology or new-age names and most other sectors. This divergence has increased in the past month with several of these stocks logging new all time highs earlier this week. Tesla in particular is the beneficiary of this mania and is reminiscent of some dotcom names in late 1999.
The table shows however that the meltup was already under way before the pandemic. Apple and Microsoft were up 86% and 55% in 2019 owing to monetary policy that was increasingly stimulative after the blunders of 2018. The fiscal and monetary measures taken to address the pandemic have, for these sectors, added more fuel to an already wildly burning fire.
The average historic forward P/E ratio of the S&P 500 is 15x but it now stands at 22x. A 1999 repeat would carry this multiple north of 30x which would be 50% upside from here. But today as back then, many sectors will not be participants in the rise.
Before the pandemic, President Trump’s favorability ratings and his re-election chances (on Predictit for example) had correlated closely with the S&P 500. Trump’s stock market has performed in line with the historic average of 10% annually, but with significantly greater volatility owing to the 2018 monetary tightening and this year’s pandemic. Under normal circumstances, the numbers in the table would bode well for the President.
But this year, the market’s divergence means that some sectors are doing very well (on Wall Street and in the real economy) while others are struggling and going bankrupt. The weak economy that is impacting a large number of people makes re-election less certain than the market indices are suggesting. The resurgence of the pandemic in several parts of the country is also problematic for the President. On the other hand, Senator Biden may not generate sufficient excitement and the kind of turnout needed to secure his victory.
A swing away from GOP candidates may lose the party the presidency and the senate with predictable consequences on tax policy and asset values. A reversal of today’s tech stock mania would then be highly probable.
Access all Wednesday Briefs here.