Tapping into Maple

A Rising Tide Doesn’t Necessarily Lift All Boats

Investing is full of clichés. Buy the rumor and sell the news. Don’t try and catch a falling knife. No tree grows to the sky. You never go broke taking profits. A rising tide lifts all boats. We could write pages and pages unpacking some of the truths, half-truths and investing lessons being displayed with many investing clichés including many that contradict each other! But the rising tide cliché is one that we can definitively say does not apply to 2020.

So far it has been an interesting year for markets to put it lightly. US equity markets saw all-time highs early on before the pandemic sent US and global equity markets crashing (No tree grows to the sky). Yields plummeted as a flight to safety occurred and the Federal Reserve cut short term rates to zero. There was a swift call to action in Washington and the CARES Act was passed which brought stimulus to corporations and individuals alike.

The remarkable thing was how quickly the equity market turned around (Don’t fight the Fed). Stock market indices hit fresh new highs in August, less than six months after the lows of March! This can be attributed to market participants looking through the abyss to the other side of the pandemic; or TINA (There Is No Alternative) to stocks given how low yields are; or just plain speculation but major indices rebounded, nonetheless.

So with this rebound: a rising tide lifts all boats right? An economy that is doing well tends to lead to broad success of stocks – is a general thought of market participants and can be used in several ways. Looking at 2020 stock performance can call into question this age old saying and oftentimes looking under the hood of the market can lead to different results or opinions about the health of the

As of the end of August, the S&P 500 was at roughly 3500, nearly a 10% total return for the year. However, looking at the various sectors that make up the index (represented by ETFs in the graph to the right) we see a wide range of outcomes for the year. The difference between returns in the technology and energy sectors as of August 31st was over 70%!

Looking at individual equities is just as interesting as the median stock in the S&P 500 was still negative on the year, at roughly –3%. What we have seen so far this year is an absolute domination of stock market returns by large-capitalization technology names – oftentimes referred to as the FANG or FAANG names (Facebook, Amazon, Apple, Netflix and Google) but also including other large cap technology names like Microsoft. The work from home dynamic clearly accelerated trends that were in place prior to the pandemic such as the shift to digital but it is important to note that those trends have been in place for over a decade. Seeing this wide gap between the higher and lower performing names should be a good enough reason to know what you own. Individual equity markets can be fickle and don’t always reward winners and losers properly over short periods of time, but over the long run, we believe companies with good management teams, strong balance sheets and positive free cash flows are hard to bet against.

Maple Capital Management, Inc. (MCM) is an independent SEC Registered Investment Advisor with offices in Montpelier, Vermont and Atlanta, Georgia. This commentary reflects the views of MCM and should not be considered to be investment or financial advice. MCM does not warranty these views and will not update this communication after the date of publication. Any mention of specific securities is done for illustrative purposes and the securities mentioned may or may not be held in client accounts. No assumption or assurance should be taken that securities mentioned will be safe or profitable investments. For further information, please contact Steven Killoran at 1-802-229-2838 or at [email protected]. For further information about Maple Capital, including a copy of our informational brochure, please visit our website at www.maplecapital.com.