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Season 2, Episode 33: Watch for ‘Blue Wave,’ Followed by Rotation Into Value Stocks

With Scott Colbert, chief economist, Commerce Trust Company

Scott Colbert, chief economist at Commerce Trust Company in St. Louis, rejoins the Contrarian Investor Podcast to discuss the state of the economy on the eve of the 2020 U.S. presidential election. 

In Colbert’s view, the economic recovery is “square root” shaped, with a quick bounce from the bottom followed by “the lazy L that comes after the easy V-part.” Politically, he anticipates a Biden victory and return of the Senate to democratic control. This will eventually lead to a higher tax rate for corporations, which together with a coronavirus vaccine will cause a rotation into value stocks.

Highlight Segments

  • The current state of the U.S. economy on the eve of the presidential election: “a deep and severe contraction with a pretty significant bounceback that is entirely V-shaped — at the moment.” (3:51);
  • The real unemployment rate is about 10% according to Colbert’s calculation, almost exactly the same level that it was at the height of the Great Recession (5:21);
  • The “final stimulus bridge” is still lacking to get us to where a vaccine can enable a full reopening of the economy (8:18);
  • What if there are more serious lockdowns in Europe? (11:32);
  • The election: A Biden victory and “blue wave” will return democrat control of the Senate (13:27);
  • From an investing perspective, the biggest change (and opportunity) will be taking advantage of a rotation into value stocks (16:50);
  • This because democrats will increase corporate taxes, which will disproportionately hurt growth companies (18:59);
  • Worst-case scenarios include the deficit (24:56);
  • Employment may not grow very quickly. An 8% unemployment rate may still be a year or more away (27:48);
  • The firm’s asset allocation for 2021 and how that has changed since January (29:11).

Read Colbert’s latest presentation here.

Not intended as investment advice.

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