Table Of ContentCONTENTS
08.31.20
VOL.C NO.35
Index
P.7
Review&Preview
P.10
Mailbag
P.35
InsideScoop
P.M7
ChartingtheMarket P.M8
Winners&Losers
P.M9
ResearchReports
P.M10
MarketView
P.M11
© 2020 Dow Jones & Company, Inc. All Rights Reserved.
Our newspapers are 100% sourced from sustainable certified mills.
BARRON’S (USPS 044-700) (ISSN 1077-8039) Published every
Monday. Editorial and Publication Headquarters: 1211 Avenue of
the Americas, New York, N.Y. 10036. Periodicals postage paid at
Chicopee, MA and other mailing offices. Postmaster: Send address
changes to Barron’s, 200 Burnett Rd., Chicopee, MA 01020
P. 12
McDonald’s Isn’t
Clowning Around
Despite a bloated valuation and
recent C-suite turmoil, the fast-
food innovator still deserves its
spot as a portfolio staple.
By AVI SALZMAN
P. 13
Vaccine Makers Face
a Moment of Truth
The stocks of companies working
on a Covid-19 vaccine are soaring.
Investors should brace themselves
for volatility in coming months.
By JOSH NATHAN-KAZIS
P. 15
Magna Makes Cars So
Others Don’t Have to
The auto-parts giant now has a
robust manufacturing arm, catering
to electric-vehicle upstarts that
would rather outsource production.
By AL ROOT
P. 16
Building Value in a
Hot Housing Market
Toll Brothers and Taylor Morrison
Home are likely to get shored up
by rising demand from first-time,
move-up, and luxury buyers.
By SHAINA MISHKIN
P. 28
Beating Its Peers by
Making Focused Bets
Profile: Polen Global Growth’s
search for high-quality companies
has led to holdings such as PayPal,
Autodesk, and Adobe.
By SARAH MAX
P. 32
The Next Disruptors
in Global Tech
Q&A: Jackson Square Partners
doesn’t care where a company is
based—only that it has competitive
advantages that can last.
By LESLIE P. NORTON
P. 5
Up & Down Wall Street:
Risky Shift in Fed Policy
By RANDALL W. FORSYTH
P. 9
Streetwise: Toxic
Politics Breed Anxiety
By JACK HOUGH
P. 19
Tech Trader: Get Set
for a Flood of IPOs
By ERIC J. SAVITZ
P. 30
Funds: Finding Growth
Beyond the FAAMGs
By EVIE LIU
P. 31
Economy: The Drain
of Income Inequality
By MATTHEW C. KLEIN
P. 34
Other Voices: A Better
Replacement for Libor
By BARNEY FRANK AND J. CHRISTOPHER GIANCARLO
P. M1
Trader: The Market Is
Going Nuts. Best to
Just Shut Your Eyes.
By BEN LEVISOHN
P. M4
Euro Trader: Coca-
Cola Bottler Could Pop
By RUPERT STEINER
P. M4
Emerging Markets:
Locking in a 4% Yield
With Saudi Aramco
By CRAIG MELLOW
P. M5
Striking Price: How to
Buy TJ Maxx for Less
By STEVEN M. SEARS
P. M6
Commodities: Gas
Prices Stall Out
By MYRA P. SAEFONG
Barron’s Roundtable
on Fox Business
Watch our TV show Friday at 10
p.m. or 11:30 p.m. ET; Saturday at
10 a.m. or 11:30 a.m.; or Sunday at
7 a.m., 10 a.m., or 11:30 a.m. This
week, see an interview with
Richmond Federal Reserve
President Tom Barkin. Plus, get
insights on how to invest in
electric-vehicle stocks if you find
Tesla’s valuation unattractive—
and more actionable investing
ideas for the week ahead.
HOWSTRONGISYOURSTATE?
Top five and bottom five in creditworthiness, as ranked by Eaton Vance. Credit ratings by
Standard & Poor’s; rainy day funds as a percent of revenue
AA+
11.5%
5.2%
96.6%
0.1%
10.4%
1.1%
9.2%
1.1%
7.6%
0.0%
AA
AA
A+
AAA
A
AAA
A-
AAA
BBB-
1. IDAHO
46. RHODE ISLAND
2. WYOMING
47. PENNSYLVANIA
3. SOUTH DAKOTA
48. KENTUCKY
4. UTAH
49. NEW JERSEY
5. NEBRASKA
50. ILLINOIS
RAINY DAY FUND
AS % OF REVENUE:
RAINY DAY FUND
AS % OF REVENUE:
RAINY DAY FUND
AS % OF REVENUE:
RAINY DAY FUND
AS % OF REVENUE:
RAINY DAY FUND
AS % OF REVENUE:
RAINY DAY FUND
AS % OF REVENUE:
RAINY DAY FUND
AS % OF REVENUE:
RAINY DAY FUND
AS % OF REVENUE:
RAINY DAY FUND
AS % OF REVENUE:
RAINY DAY FUND
AS % OF REVENUE:
P. 20
Risks Rise for Muni Bonds
America’s $3.9 trillion municipal bond market faces unprecedented challenges as the
Covid-19 pandemic strains state and city budgets. We rank all 50 states based on their
financial strength. By LESLIE P. NORTON & STEPHEN KLEEGE
P. 26
How to Gamble on New York’s Recovery
Three real estate investment trusts—Vornado, SL Green, and Empire State—offer a cheap
postpandemic play for those willing to stomach the risk. By ANDREW BARY
VOL. C
NO. 35
AUGUST 31, 2020
$5.00
WHAT TO WATCH AS THE VACCINE RACE ACCELERATES • PAGE 13
>
63142
America’s cities
and states are
facing monstrous
revenue shortfalls.
Trouble ahead for
municipal bonds.
PAGE 20
How strong is your
state? All 50 ranked.
PAGE 24
Intriguing plays on New
York real estate.
PAGE 26
August 31, 2020
BARRON’S
3
Company Name
Symbol
Weight
Amazon.com
AMZN
25.00%
Home Depot
HD
12.61%
McDonald's
MCD
6.38%
NIKE B
NKE
5.34%
Lowe's
LOW
4.62%
Starbucks
SBUX
3.97%
Booking Holdings
BKNG
3.03%
Target
TGT
2.80%
TJX
TJX
2.77%
Dollar General
DG
2.13%
XLY
Sector SPDRs allow you to invest in pieces of the S&P 500. Like Consumer Discretionary. While adding diversification and reducing single stock risk.
These ETFs combine the diversification of a mutual fund and the tracking of an index with transparency and liquidity.
THECONSUMERDISCRETIONARYSECTOROFTHES&P500INONEETF
CONSUMERDISCRETIONARYSECTORSPDRETFTOP10HOLDINGS*
An investor should consider investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus, which contains this and other information, call 1-866-SECTOR-ETF or
visitwww.sectorspdrs.com.Readtheprospectuscarefullybeforeinvesting.
The S&P 500, SPDRs®, and Select Sector SPDRs® are registered trademarks of Standard & Poor’s Financial Services LLC. and have been licensed for use. The stocks included in each Select Sector Index were selected by the compilation agent. Their composition and
weightingcanbeexpectedtodiffertothatinanysimilarindexesthatare publishedbyS&P.TheS&P500Indexisanunmanagedindexof500commonstocksthatisgenerallyconsideredrepresentativeoftheU.S.stockmarket.Theindexisheavilyweightedtoward
stocks with large market capitalizations and represents approximately two-thirds of the total market value of all domestic common stocks. Investors cannot invest directly in an index. The S&P 500 Index figures do not reflect any fees, expenses or taxes. Ordinary
brokeragecommissionsapply.ETFsareconsideredtransparentbecausetheirportfolioholdingsarediscloseddaily.Liquidityischaracterizedbyahighleveloftradingactivity.
SelectSectorSPDRsaresubjecttoriskssimilartothoseofstocks,includingthoseregardingshort-sellingandmarginaccountmaintenance.AllETFsaresubjecttorisk,includingpossiblelossofprincipal.Fundsfocusingonasinglesectorgenerallyexperiencegreater
volatility.Diversificationdoesnoteliminatetheriskofexperiencinginvestmentlosses.
ALPSPortfolioSolutionsDistributor,Inc.,aregisteredbroker-dealer,isdistributorfortheSelectSectorSPDRTrust.
Visit www.sectorspdrs.com or call 1-866-SECTOR-ETF
*Components and weightings as
of 7/31/20. Please see website for
daily updates. Holdings subject
to change.
4
BARRON’S
August 31, 2020
The Refinitiv Lipper Fund Awards are based on the Lipper Leader for Consistent Return rating, which is a risk-adjusted performance measure calculated over 36, 60 and 120 months. Lipper Leaders fund ratings do not constitute and are not intended to constitute investment advice or an offer to sell or the
solicitation of an offer to buy any security of any entity in any jurisdiction. For more information, see lipperfundawards.com. Lipper Fund Awards from Refinitiv, ©2020 Refinitiv. All rights reserved. Used under license. The award is based on a review of risk-adjusted performance of 33 companies for 2020.
The award pertains only to the Nuveen funds in the fixed-income category. Certain funds have fee waivers in effect. Without such waivers ratings could be lower.
Past performance does not guarantee future results. This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does
not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.
Before investing, carefully consider fund investment objectives, risks, charges and expenses. For this and other information that should be read carefully,
please request a prospectus or summary prospectus from your financial professional or Nuveen at 800.752.8700 or visit nuveen.com.
Nuveen Securities, LLC, member FINRA and SIPC.
20854
GAD-1134692CR-W0420X
Income strategies as
deep as our heritage
• Over 120 years as an income provider
• Expertise across municipal bonds,
taxable fixed income and real assets
• Awarded 2020 Best Fixed Income
Large Fund Company
nuveen.com/income
August 31, 2020
BARRON’S
5
UP & DOWN WALL STREET
“Policy has flipped back to the days of wide lapels
and double-knit suits,” writes one economist, “but
the inflation response will not be like the 1970s.”
The Fed Unveils an
Everything-Old-Is-
New-Again Policy
another presidential term.
This was the case before the Fed’s
revamp of its policy strategy, which
Powell had expected to unveil last
spring until the intervention of the
coronavirus crisis. It shouldn’t have
come as a surprise. At his July 29 press
conference following the last Federal
Open Market Committee meeting,
Powell said that changes would actu-
ally be “codifying the way we’re already
acting with our policies.”
To veteran Fed watchers, however,
the new policy regime seems a lot
like one from the 1960s and ’70s. Then,
it was thought that trading off a little
higher inflation would pay off in lower
unemployment. And that’s the worry.
“Policy has flipped back to the days
of wide lapels and double-knit suits,
but the inflation response will not be
like the 1970s,” writes Steven Blitz,
chief U.S. economist at TS Lombard.
Back then, baby boomers were flood-
ing the job market, most consumer
goods were produced domestically,
and the labor force was highly union-
ized, all of which fueled the wage-
price spiral. Now, by contrast, there is
slow labor-force growth while high-
cost labor readily gets replaced with
cheaper workers abroad or still-
cheaper technology. Job growth has
been concentrated in lower-wage re-
tail, leisure, and hospitality employ-
ment, which has held down earnings
growth even though unemployment
(pre-Covid 19, that is) was low.
If the recovery is a traditional one,
wage hikes ought to help the Fed
reach its inflation goal, Blitz says. He
gives this a better-than-even chance
if hiring comes from onshoring of
jobs or construction, which could get
a boost from a long-promised federal
infrastructure buildup. But most in-
flation will probably get expressed in
rents, a tax on spending power, with
technology and globalization remain-
ing disinflationary counterweights.
Inflation has already been running
above 2% for four of the past five
years, as measured by the “core” con-
sumer price index (which excludes
food and energy costs), writes Joseph
Carson, former chief economist at
AllianceBernstein, on LinkedIn. The
Fed instead follows the personal con-
sumption deflator, which has consis-
tently fallen short of its 2% target.
Carson explains that the PCE gets
70% of its data from the CPI but that
the PCE also includes items provided
to consumers by government and
businesses, the prices of which are
imputed by the Bureau of Economic
Analysis since these items aren’t actu-
ally sold to consumers. The PCE has a
heavy weighting on health-care costs
that are fixed by Medicare and Medic-
aid reimbursements, notes Peter
Boockvar, chief investment officer at
Bleakley Advisory Group.
Consumers don’t see any shortfall in
inflation, however. The University of
Michigan’s sentiment surveys show
that consumers’ inflation expectations
have consistently run ahead of re-
ported numbers and the 2% target,
Carson says. Higher prices hurt those
who can least afford it, Boockvar adds,
resulting in lower real incomes for
lower-paid workers.
The real beneficiaries of the Fed’s
quest to boost inflation by keeping
interest rates low are borrowers and
the financial markets.
Of the former, Uncle Sam is the big-
gest borrower. The federal deficit al-
ready was running at about a $1 trillion
annual rate before the pandemic hit and
now is projected to total $3.7 trillion for
the fiscal year ending next month. Be-
ing able to borrow at under 1% for all
but the longest maturities makes the
burgeoning debt easier to finance.
But to keep interest rates low while
the deficit continues to rise will mean
more Fed purchases of Treasury secu-
rities, Blitz contends. That means the
central bank has de facto signed on to
modern monetary theory, which holds
that governments can borrow without
limit in their own currency, he adds.
Whatever the case, longer-term
Treasury yields moved markedly
higher on Thursday in reaction to
Powell’s presentation. The benchmark
10-year note yield rose six basis points
(six hundredths of a percentage point)
to 0.74%, while the 30-year bond yield
popped nine basis points, to 1.5%,
both the highest levels since mid-June.
By Randall W.
Forsyth
Federal Reserve
Chairman Jerome
Powell
J
ay Powell, be careful what
you wish for. In outlining
the Federal Reserve’s new
policy goal of lifting infla-
tion, the Fed Chair’s stated
aim was to maximize em-
ployment. However, the
unanticipated consequences could be
unwanted turbulence in the bond and
stock markets.
At the Kansas City Fed’s Jackson
Hole conference, conducted online in
place of the usual junket at the Wyo-
ming resort because of the pandemic,
Powell outlined the Fed’s long-awaited
update of monetary-policy strategy.
The major change was that the Fed
would aim for inflation averaging 2%,
with shortfalls under 2% to be com-
pensated for by periods with inflation
“moderately above 2%.” Based on its
preferred measure, inflation has run
short of that 2% target.
The key implication is that the Fed
would be slower to raise interest rates,
which would allow unemployment to
remain lower. The central bank’s new
statement said it would seek to mitigate
“shortfalls” from maximum employ-
ment, rather than mitigate “deviations”
from that level. That seemingly small
change in wording actually represents
an important shift, writes Lewis Alex-
ander, chief U.S. economist at Nomura.
No longer will the Fed tighten just be-
cause the jobless rate falls below what
it thinks is full employment.
That adds up to low interest rates
for years to come. TD Bank’s strategists
write that the futures market doesn’t
expect the Fed to raise its target range
for federal funds from the current 0%-
to-0.25% range until late 2024—almost
Andrew Harrer/Bloomberg
6
BARRON’S
August 31, 2020
However, what the Fed has succeeded
in creating is asset inflation. While the CPI
has been running above 2%, Carson argues
that “the bigger problem is the new policy
will trigger more speculation and risks in
finance at a time when asset values are
already at nosebleed levels.” Excessive
exuberance in finance or the economy
creates imbalances that naturally correct,
but with a crash, he says.
The Fed’s injection of liquidity via secu-
rities purchases is supposed to boost bank
lending, Blitz says, but instead has gone
into the risk-asset markets with an “atten-
dant misallocation of capital.” At the same
time, the new policy effectively enshrines
the “Fed put,” in which the central bank
comes to the rescue of the equity market,
which it assuredly will do if the jobless
rate remains elevated. But that doesn’t
mean the market can’t fall. If all it took
were central bank reserve expansion, he
observes, the Japanese market wouldn’t
still be trading far below its 1990 peak.
The one thing absent from the Fed’s
new regime was so-called forward guid-
ance as to where monetary-policy makers
think they’re headed. In practical terms,
the Fed’s current policy of near-zero inter-
est rates and heavy purchases of Treasury
and agency mortgage-backed securities
will continue as long as unemployment is
elevated. The chasm between a Wall Street
at record levels and a Main Street in a
near-depression will persist as a result.
T
he stock market’s late-summer
levitation continued, bolstered
by hopes that treatments or
vaccines for Covid-19 lie just
over the horizon.
The optimism—spurred by a late Sunday
announcement of the Food and Drug Ad-
ministration’s emergency-use authorization
of convalescent blood plasma to treat coro-
navirus patients—was undented when the
agency’s head was forced to walk back the
claims for the therapy two days later. Ab-
bott Laboratories’ (ticker: ABT) announce-
ment of a rapid $5 Covid test further raised
hopes that we can coexist with the virus
while we await a safe and effective vaccine.
Investors have a lot at stake in the race for
vaccines, both in the companies developing
them as well as what it would mean for the
economy and financial markets. Those bull-
ish expectations also hinge on public accep-
tance, despite various polls showing that
about a third of Americans wouldn’t accept
a Covid-19 vaccination, even if it were free.
In any case, the S&P 500 index and the
Nasdaq Composite ended the week up
3.26% and 3.39%, respectively, on pace for
the best August since at least 2000, with
the Dow Jones Industrial Average just
3.04% short of its February record, ahead of
its Monday revamp. On the basis of history
(to the extent that means anything when
the word of the year for 2020 is likely to be
“unprecedented”), the stock market may be
perched rather uneasily at these heights.
If you want to enforce social distancing,
here are some factoids that are sure to get
anybody who’s not a market nerd looking
for a graceful exit. According to the venera-
ble Stock Traders Almanac, September is
the cruelest month for the Dow, falling 41
of 70 times since 1950, with an average de-
cline of 0.6%. In election years, the win-loss
percentage is about the same, with the Dow
down 10 of 17 times in September, with an
average drop of 0.4%.
Looking ahead, JPMorgan’s global quan-
titative and derivatives strategy team led by
Nikolaos Panigirtzoglou writes that finan-
cial markets face two key tests in coming
months. The first is the FOMC meeting that
winds up on Sept. 16, in which the team
members look for the panel to outline addi-
tional support for its new policy framework
(discussed above). They think failure to
make further pledges on forward guidance
on rates or additional securities purchases
would be a disappointment. We’d aver that
Powell & Co. already has effectively made a
Mario Draghi–style pledge to do whatever it
take to keep money supereasy as long as
unemployment remains high and inflation
doesn’t get out of hand.
The really big unknown is the presiden-
tial race, which the JPMorgan team con-
tends will tighten further as campaigns
kick into high gear. The lead of former Vice
President Joe Biden over President Donald
Trump in polls and betting markets has
narrowed recently. Even more importantly,
margins have gotten still tighter in key bat-
tleground states that will determine the
outcome in the Electoral College.
Even before considering the ultimate hell
of a contested presidential election, there’s
lots more political drama to play out in the
months ahead. Both candidates would
probably favor more fiscal stimulus—a plus
for markets, the JPMorgan strategists say—
but a more decisive win by either with his
party also controlling Congress along with
the White House would increase the likeli-
hood of a new spending package. Mean-
while, the tug-of-war over new aid to re-
place expired pandemic-related benefits
will resume. Fasten your seat belts. B
email:
