Hall Capital “Market Views” Newsletter October 2020

This is the 43rd edition of Market Views from HALL CAPITAL. Our aim is to provide concise views of where we see risk and opportunity for investors.

Are Stock Prices Predicting the Election?
- nope

While the upcoming election is an important one, it is far fetched to believe that the stock market is high due to the expectation that one or the other presidential candidates will carry the day. Biden is leading in nearly all swing states but this is unlikely the reason stock prices are high in relation to earnings. Stock prices are high due to the factors mentioned in last quarter's letter, namely unprecedented government stimulus and rock bottom interest rates.

On the one hand a Trump victory would allow corporate tax rates to remain at 21%. On the other hand a Biden victory would remove much of the chaos from the oval office and engender a plan to deal with the pandemic that has worked in other countries allowing them to open safely, not to mention working more closely with other countries to solve global problems.

Presidents get more credit and blame for the economy than they deserve. A bigger issue near term issue is the fate of the much needed additional stimulus for which both sides are still far apart. We expect $2 Trillion or so additional stimulus to be forthcoming in due course which will be welcomed by investors and main street alike.

Developments On the Health Front
- are mixed STILL

The pandemic continues to rage in the US partly due to nature — cooling temps in parts of the country. Not helping is the inconsistent messaging from the government — the use of masks, the recommended pace of full re-openings, the importance of testing and tracing, who is at risk and when a vaccine can be expected. The result is that the cases have continued to rise now seven months into the pandemic. Thanks to improvements in treatment, the death rate has moderated. Still the US will suffer the largest number of recorded COVID deaths in the world: between 275,000 to 375,000 before this year is over.

The market has been resilient in the face of all this due to factors mentioned. It is due for a correction and this time of year is particularly treacherous from a seasonal point of view. Our worsening relationship with China remains a concern as well the impact of the pandemic's second wave — and we WILL have a second wave.

Nevertheless, our position remains cautiously optimistic with equities as our asset of choice long term. While the management of the pandemic has been poor, private companies are doing their part to advance tests, treatments and, most importantly, a vaccine which we believe will become widely available before mid-year 2021.

While we have no reason to believe interest rates will rise in the near future, the return in relation to risk for long bonds looks poor.

Focus List Returns 16% Per Annum
- since inception well out-performing the market

The conservative Focus List turned in a respectable 8.4% in Q3, which compares to 8.9% for the S&P 500. The FL outperformed the market on a one, five, and ten year basis. The FL returned 17.4%, 16.0% and 16.1% over one year, five years and since inception, which was 10 years and a quarter. Over the same time frames the S&P 500 returned 15.1%, 14.5% and 14% respectively.

We are adding OraSure which is a small company even though it has been around for over 30 years. OraSure has the only self test for HIV. OraSure's saliva test for COVID-19 is expected to be out by this December. This small cap is a speculation, but an interesting one.

The Focus List remains void of the industries hardest hit by the pandemic: airlines, hotels, retail, energy, banks, cruise lines. Not that there aren't opportunities there, but we are content to stay conservative for the time being.

For individual stocks as well as selection strategies, past performance is not necessarily indicative of the future.

Hall Capital Focus List

Verizon - largest cell phone service provider in the US. Some debt but safe 4.3% dividend yield.
S&P 100 - largest 100 companies by cap. Large scale in their industries provides strong competitive position.
China Mobile - largest cell phone operator in the world with 942 million subscribers. 5G adoption should edge up growth. 6.1% yield.
NovoNordisk - Danish company has 50% of the global market for insulin. Strong balance sheet.
Alphabet - Google is the "oxygen of the internet." Leader in AI and other forward technologies. Net cash >$100bil to use for add on acquisitions.
CVS Health - with Aetna insurance and growing in store clinics the chance to become the most integrated health care company.
Apple - brand with 1.4 billion users providing new growth opportunities in service revenue and wearables.
Corning - leader in glass for fiber optics and displays.
iShares Gold Trust - hedge vehicle against uncertainty and potential lower US $ down the road.
OraSure - small, but established life science test company which expects to have a COVID-19 saliva test Q4 2020. No debt and large cash position to fund growth.

Follow Up – from our letter one year ago

"In recent days 'impeachment risk' has been reintroduced. This writer would say that this is NOT a large risk to investors."
- The market moved ahead despite a particularly contentious impeachment trial.

"Could US Interest Rates Go to Zero? yes, indeed."
- Short rates did indeed go to zero. However, clearly at the time of this writing there was no anticipation of a pandemic driven interest rate response.

NOTE: Now in addition to ALL our quarterly letters, on our website is a tab with just the Follow Ups.

About HALL CAPITAL

HALL CAPITAL, LLC is a registered investment advisor and was formed by Principals from Arcturus Capital in 2010.
For more information, contact Donald Hall 626 578 5700 x101 dhall@hallcapitalmanagement.com

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