Investing opportunities can be found in many small-cap companies and even in some large caps, according to Leah R. Bennett, president of Westwood Wealth Management Houston.
The stock market is not as overpriced right now as many investors fear, Bennett said during a discussion of market conditions. But much of the view of investors is shaped by consumer attitudes, and consumers are still pessimistic about the economy and health concerns related to the pandemic, she said in an interview. Westwood Wealth Management focuses on high-net-worth investors and nonprofits. Bennett was appointed president of Westwood Wealth Management's Houston office in March 2018. Prior to joining Westwood in 2016, she was co-chief investment officer at South Texas Money Management.
“At Westwood, we get lots of questions from clients about whether the market is overvalued now,” said Bennett. “We’re seeing companies starting to come back [after the precipitous drops in March], but you can still find high-quality, small-cap stocks that are value priced. Consumer confidence is lagging behind the market and there are still significant discounts available.”
Westwood feels the potential discovery of a vaccine for Covid-19 has already been priced into the market. “This is really encouraging to me,” Bennett said. “The development of a vaccine would be fabulous, but even a treatment for Covid-19 would boost the economy.”
Stocks related to consumer goods and services remain in the doldrums, but when consumer confidence returns the market gap between consumer firms and nonconsumer-oriented firms will close, she remarked. “If you look at the 12 months that ended June 30, good market returns were only in the tech sector.”
Credit markets are doing well after the Federal Reserve Board backstopped the credit markets in March, Bennett said. “After oil plummeted, credit essentially froze until the Fed stepped in. Now the Fed is buying qualified debt and the credit market is fairly robust. Large blue-chip companies have borrowed $1.36 trillion this year as they prepare for the future. That is an indicator of the health of the economy.”
Regarding potential inflation, Bennett said Westwood feels there will be a deflationary trend in the near future rather than inflationary, in part because there will be less demand for real estate and rents will decrease. There also will be an ongoing drop in demand for energy as people continue to curtail driving.
The prospect for higher taxes in order to pay for various government stimulus packages may put a drag on the economy, she noted. But depending on the political winds, there also may be a dramatic reduction in the tax on large estates.
“All of these factors mean that financial planning is needed more now than ever before,” Bennett said. “We will have a better sense of the economy and where we are going by the end of the year.”