Market and Economic Observations
December 10, 2021
Covington recently presented their observations on the market and economy at our annual shooting event held at Pike Run Country Club. Please find our presentation commentary below.
Introduction:
Good evening on behalf of my colleagues at Covington and my wife Kim. Thank you for joining us here tonight. I trust you have enjoyed being here at Pike Run.
A few of us shot sporting clays earlier today and a few of us shot better than others. 1St place, 2nd place, and 3rd place trophies were awarded to the top shooters.
Alma Johnson has decided to put her feet up after working for 60 years. I can’t imagine why she would want to retire now. Eighteen of those years were with Covington. It was just Alma and I when we started Covington in 2003. My dream of owning my own firm would not have...
117 Hits
Last week, we had the pleasure of hosting our first board of directors meeting for the Laurel Highlands Workforce & Opportunity Center in their new building located at 310 Donohoe Road, Greensburg PA. My wife and I founded the non-profit organization to remove the barriers of structural poverty for individuals who are under and/or unemployed, or are in transition of employment. Our vision for the center is to serve as a hub of human services that will provide for the betterment of the human experience.
It is our hope to simultaneously address the labor needs of the businesses located in Westmoreland County. Our efforts will be collaborative, multi-faceted, and modeled after Bill Strickland’s Manchester Bidwell Center. To accomplish our mission we plan to leverage the talent and skills of our Board of Directors. Anne Kraybill, Executive Director of the Westmoreland Art Museum will be developing our arts program along with... 
In anticipation of heightened volatility, I wanted to touch base with you as I see the current economy and markets at an inflection point. Year to date global equities have continued their strong momentum from last year with many indices posting double digit gains so far in 2021. The S&P 500, the market index comprising of the largest US companies, has notched over 40 closing all-time highs in 2021 with one of the strongest recoveries coming out of a recession on record.
If you recall, early in this market rally from the March 2020 lows the central narrative surrounding the economy was that markets were disconnected from fundamentals and thus ripe for a “double-dip” sell-off. This did not end up being the case as economic data on almost every front has come in stronger than expected and 2021 corporate earnings are projected to come in 21% higher than 2019 levels.... 
The economic momentum continued its recovery from the pandemic induced lockdowns in the 1st quarter 2021 with real GDP expanding at an annual rate of 6.4% in the first quarter of 2021. Massive spending measures by the government, unprecedented Fed policy measures, overall strong employment recovery and greater vaccination rates drove strong economic activity, delivering strong S&P 500 operating earnings largely above expectations up 34.1% year over year trending at $187.43 from $139.00 at year end. Inflation reached 2.6% in the first quarter due to reopening demand along with material and product shortages. Consumer spending expanded 10.7% at an annual rate in the first quarter supported by strong household income as federal stimulus checks continue.
The rotation into cyclical – value stocks which started last September continued in the first quarter which helped thrust the S&P 500 to new highs despite consolidation in the mega caps. Equity markets are priced... 
Covington Investment Advisors, Inc. is pleased to announce that Cindy Jones has earned the Chartered Financial Analyst (CFA) designation. This designation requires successfully completing a series of three exams covering a wide range of topics related to financial analysis. In addition to passing the exams, other requirements include having relevant work experience, submitting professional references, and adhering to the Code of Ethics and Standards of Professional Conduct of the CFA Institute. Additionally, she holds the Series 65: Uniform Investment Advisor Law license.
Cindy joined Covington in 2012 as Assistant Portfolio Manager and currently holds the positions of Portfolio Manager and Chief Compliance Officer. She earned a Bachelor of Science degree in Applied Mathematics with additional studies in Computer Science and Statistics from the University of Pittsburgh.
As Portfolio Manager, Cindy oversees the firm’s investment committee’s processes for determining the buys, sells and holds of all the securities held by the... 
As you may recall, in early 2017 we started the initiative to combat the Opioid Epidemic in our area and were seeking a Federal High Intensity Drug Trafficking Area (HIDTA) Designation for Westmoreland County. When we started this initiative, the overdose rate of deaths in our county was growing at 46% per year. The complete costs associated with these deaths is immeasurable in terms of the families affected and the lost contributions these individuals may have had in our communities.
Although our original efforts were thwarted due to political reasons, I am pleased to say that Westmoreland County has finally been designated a HIDTA by the White House’s Office of National Drug Control Policy. Westmoreland joins three other Southwestern PA counties (Allegheny, Beaver, and Washington) in receiving dedicated federal resources to coordinate federal, state, and local government to fight drug trafficking and abuse.
The HIDTA designation will allow Westmoreland County... 
2020 Earnings Update
Strict government-imposed restrictions including shelter-at-home policies did not come into place until mid-March across most of the country. This means that the impact to corporate earnings will not be reflected fully in first quarter numbers but more completely in second and third quarter results.
First quarter earnings have so far been fairly solid with most companies reporting results in line with initial expectations. As expected, most companies have been cautious with giving too much insight into what upcoming quarters numbers will look like. Roughly half of S&P 500 companies provided 2020 EPS guidance through the end of February. If early reporters are any indication than many of these companies will continue to not give 2020 guidance or withdraw previous projections.
While poor upcoming numbers are largely already being priced in by investors, the second and third quarter will presumably be a bumpier earnings season as the... 
Reopening of the Economy
The next step as we move through this virus pandemic is the reopening of the economy and a return to normalcy. Although the “reopening” of the economy is talked about as a singular moment where economic activity is resumed, we see it as more of a process that will take place over the next 2-3 quarters. The economy being “open” is one thing, but the return to normalcy is the more difficult time window to predict. It may take years for several aspects of the economy to return to pre-virus conditions. Financial markets, particularly the fixed income market, have likely been changed for a significant period of time on behalf of the unprecedented central bank stimulus taking place across the globe.
The virus has not affected all regions equally and this will not change once economies reopen. Those parts of the country that have a... 
Where We Are in The Life Cycle of COVID-19
Last month we provided a framework for how we believed the COVID-19 life cycle would play out considering current available data and past virus outbreaks keeping in mind different countries progress at different paces.
At that time, we felt the United States was in stage 3, preparing to move to stage 4 of the virus’s life as local transmission began to take hold and sustained government action was taking place. Since then we have seen unprecedented government lockdowns across the country, social distancing/mask requirements, increased urgency on the part of the government to develop nationwide testing, and pharmaceutical companies rushing to find a potential vaccine.
Today we believe we are in the mid-to-latter part of stage 4 where our healthcare system has absorbed the shock from the wave of new virus patients and cases continue to grow. New daily cases... 
Case Growth
COVID-19 cases in the US continue to grow but the encouraging sign is that the case growth rate appears to be slowing down. After reaching a peak on April 4th, shortly after government shutdowns were enacted, new daily cases have been relatively flat. Hopefully as the US continues to follow Italy’s path total cases will also continue to taper off. This slowdown of the virus is key not only for ensuring medical institutions are not overwhelmed but also for being able to reopen the economy.
We continue to monitor these developments and as more information becomes available, we will be sure to keep you informed.
Pat
Commentary Disclosures: Covington Investment Advisors, Inc. prepared this material for informational purposes only and is not an offer or solicitation to buy or sell. The information provided is for general guidance and is not a personal recommendation for any... 
Volatility in Oil Markets
One pocket of the capital markets that has seen elevated levels of volatility is the commodities sector, particularly crude oil products. On the supply side, recent negotiation fallouts have led to a price war being waged between Saudi Arabia and Russia. At a time where output cuts were trying to be reached by OPEC+, two of the largest oil producers on the planet have maxed out their production capacity flooding the market.
The demand side of the shock comes from the halt in economic activity brought on by the virus outbreak and government shutdown. Without people flying, driving, or transporting goods, demand for crude oil and refined products have dropped off the map.
Investors were greeted by headlines this morning of US light crude oil prices hitting 21-year lows at an astonishing $13.99 per barrel. But those watching this front month expiry benchmark should be aware... 
I thought you might find this update helpful to understand the government’s actions to stabilize the economy. Lawmakers finally came together on a bipartisan stimulus package that was signed into law on Friday, March 27th. The $2 trillion dollar stimulus package known as the CARES Act will act as a lifeline for businesses and employees while the government shutdown persists. The graphic below breaks down the different buckets of the package and how funds are being distributed.
On top of support for large and small businesses, the bill also provides support for hospitals and drug makers that are working to fight and contain the virus. Details are still being provided on the logistics and timing of payments and programs, but officials have been adamant about rolling these out as soon as possible.
The CARES Act is just one aspect of the measures currently being taken to minimize the damage from the... 
Now is the time to look forward and stick to a plan of action. Virus pandemics have a lifecycle that they go through and just like every life cycle they are not exact but can be useful as a timing tool. This framework is important for us as we navigate this volatility and make tactical investment decisions. Our timing will never be exact but what is important is that we are not basing our investment decisions on panic rather than sticking to realities and our core investment philosophy.
The current coronavirus cycle is broken down into 5 stages. Right now, we are crossing over from stage 2 to 3. After the initial spotty cases across the country now we are seeing person to person transmission and the number of total cases to expand dramatically. Our transmission rates have been on par with other countries, but our mortality rate is significantly... 
Peak in Global Infection Rate
Worldwide infection numbers continue to grow as most of the world remains in shutdown. The service sector has been especially badly affected, with consumer facing industries bearing the brunt of the social distancing measurements. Although domestic health centers are strained, they have not been overrun such as those in Italy or Wuhan, China.
It’s not all doom and gloom, positive signs are popping up in pockets across the world.
In an encouraging sign, Italy has reported three straight days of new cases below the peak of 6,557 which occurred on March 21st. Saturday was 16 days since Italy took more drastic measures of social distancing such as shutting schools, universities, and non-essential businesses. China reached peak reported numbers 12 days after taking such measures. This would mean that we can use this 12-16 day window as a rough guide for a peak in the United... 
Peak in Global Infection Rate
Cases from around the globe continue to grow as widespread testing is being rolled out. To track the trajectory of the virus we are watching how fast the infection grows in a country after the number of cases exceed 100. China began to stabilize after roughly 36 days. When excluding Hubei, the epicenter of the Virus outbreak, this stabilization came even earlier at around 26 days. Although we try using other countries that are further along in their timeline as precedents it is important to keep in mind that not all countries are following the same trajectory. Italy, for example is experiencing rapid spread of the virus stemming from cultural norms such as tight living conditions and an aging population. South Korea has already flattened their curve by extensive testing and quarantine measures.
Coordinated Stimulus
Over the weekend the senate failed to come together on... 
A Peak in Global Infection Rates
This is the most important factor for sensing a market bottom but also the most difficult to predict because of the uncertain nature of viruses. Using available data and models we can estimate the timeframe that it takes for a country to reach its peak infection rate and then flatten out.
Many governments around the world believe the virus will peak in June or July but using China as an example we believe that peak could occur even earlier as long as countries take the necessary precautions to curb the spread of the virus. Every country has different circumstances. Italy for example has not been effective at stopping the virus and an aging population has made the mortality rate especially high. On the other hand, South Korea has shown the ability to stem the spread of the virus in an outstandingly quick timeframe through... 
How do we navigate this unprecedented market environment? While the circumstances of the Coronavirus/Oil War are extraordinary we are in the midst of a major crisis. Simply put, in a crisis there are certain actions we must adhere to as long-term investors until this crisis passes. We use historical precedents as a guideline, but every crisis is different. What isn’t different is how we approach them. This is not a time to be frequently trading long term positions locking in losses under irrational circumstances. Once the virus hysteria passes, events and gatherings return to normal, and fiscal stimulus is launched by the government the market will stabilize. The stock market rewards investors who are long term oriented. While others are selling their shares out of panic, it creates an opportunity for those who want to buy a stake in those companies with the mindset of a long-term part-owner. Stocks of... 
I’d like to share with you yesterday’s insights from Schwab Chief Investment Strategist Liz Ann Sonders in response to the economic implications of the COVID-19 and the recent crash in oil prices.
Covington Investment Advisor Disclosures:
The information contained in this commentary has been compiled by Covington Investment Advisors, Inc. from sources believed to be reliable, but no representation or warranty, express or implied, is made by Covington Investment Advisors, Inc., its affiliates or any other person as to its accuracy, completeness or correctness.
Under no circumstance is the information contained within this correspondence to be used or considered as an offer to buy or sell or a solicitation of an offer to buy or sell any particular security. Nothing in this correspondence constitutes legal, accounting, or tax advice or individually tailored investment advice, or research. This material is prepared for general circulation to clients, and... 
The current scene of volatility in the markets is one that we do not take lightly or underestimate the degree to which financial markets can work themselves into a panic. We understand that the current selloff this past week is difficult to endure. Based on our financial planning and investment management approach our client portfolios have been designed for every possible environment, good or bad. Fortunately, our portfolios are designed to prepare for such circumstances as we are currently experiencing. You have a financial plan that has incorporated an emergency fund of cash representing 6-12 months of cash needs so that you would not be forced to sell assets at the wrong time. Our yield bias of dividend paying stocks provides ongoing cash flow support and our focus on large capitalized proven enterprises has proved to be protective in these environments as well. Our total avoidance of international and emerging... 
It’s official, Nick is out of the living room! Construction is over at Covington!
If you have visited our office in the past year you may have noticed a few out of the ordinary things; our Research Analyst, Nick Allen, working in the living room, loud noises, ladders, construction workers, etc. Well, this was all a part of our expansion, adding more office space upstairs to keep up with the growing needs of our company. I am happy to announce the addition at Covington has now been completed. I would like to take you on a virtual tour of our new office space, starting with the outside of the building.
New view from the front of the building
New view of the back of the building
Next, we will go inside and upstairs to the new office space.
First, you will see Alma's newly renovated office. Alma Johnson is Covington's... 
We all know how music impacts us individually. It comforts us, inspires us and connects us to one another.
But music is so much more; there is something about its impact on us physically, emotionally and mentally. In fact, it helps to develop the left side of the brain which fosters creativity that drives our innovativeness that allows us to solve problems. In essence it is a facilitator for the betterment of the human experience.
Recognizing the diminishing arts programs in our schools and the many societal challenges that we face we have felt compelled to do something about that and so we have been underwriting music and art programs in our community through our business and family foundations. Additionally, each year we sponsor the Independent Music Teacher Award facilitated through the Westmoreland Symphony Orchestra. This year at the Carmina Burana concert we announced the 2019 honoree as Jacqueline... 
Covington Investment Advisors is continuing to expand in order to best serve the needs of our clients. Our office expansion efforts are underway and are nearing completion in the next few months. The expansion will provide us with more office space upstairs. You can see some pictures of the progress below. With our expanding space and client base, you may see some new faces at Covington soon. We would like to now introduce our newest hire, Nick Allen, an upcoming graduate of Indiana University of Pennsylvania. Nick will be joining us as a Research Analyst and has been interning at Covington since May.
On April 28, 2018, Covington Investment Advisors sponsored the Westmoreland Symphony Orchestra (WSO) Concert titled “Fauré Requiem”.
At Covington, not only do we strive to meet our clients’ financial goals, we also focus on making a difference in our community. Fostering creativity in our schools is the key to continued growth and success for children and Covington is passionate about helping our children. Recognizing the diminishing arts programs in our schools and the many societal challenges that we face, we have felt compelled to do something about that. And so, we have been underwriting music and art programs in our community through our business and family foundations, some of which are facilitated through the Westmoreland Symphony Orchestra.
This year Covington Investment Advisors, Inc., through the WSO, has established an award to recognize the private music teachers in our community to give long overlooked recognition for their impact on our children... 
Covington Investment Advisors, Inc. is pleased to announce that Sarah E. Rovedatti has joined our firm as Chief Compliance Officer. Sarah has over nine years’ experience working in the financial services industry holding various positions in client service and compliance. She is a graduate of Lycoming College with a B.A. in Business Administration and earned her MBA at Villanova University.
Sarah will be responsible for maintaining, developing and monitoring the firm’s compliance program, ensuring that all activities of the firm meet regulatory requirements. She will also be acting as a liaison with legal and regulatory bodies on compliance-related issues.
Covington recently presented their observations on the market and economy at our annual shooting event held at Pike Run Country Club. Please find our presentation commentary below.
The economy’s recent performance is real and is supported by sound economic fundamentals. GDP growth is shifting from Obama’s anemic growth rate of 1.8% to 3+% in the last two quarters. This growth rate of 3+% back to back quarters has not happened for over ten years. While GDP for 2016 will come in around 2.2% this year, 2018 is looking good as well with a projected growth rate of 2.6%. Global GDP is at 3.6%. The economy is continuing to expand and by definition a recession is declared when we experience three negative quarters of GDP so this bull market cycle continues.
The roll back of regulations by President Trump has business confidence soaring. Companies are spending again on capital... 
High Intensity Drug Trafficking Area (HIDTA) designation is key to providing a Multi-Jurisdictional Task Force in Western Pennsylvania to curb the source of drugs supplying the Opioid Epidemic.
As an ongoing effort to have our congressional representative apply for a Federal High Intensity Drug Trafficking Area (HIDTA) designation for Westmoreland County, I recently met with the Acting United States Attorney for the Western District of Pennsylvania, Soo. C. Song, Retired Chancellor of the University of Pittsburgh and Chair of the Institute of Politics, Mark A. Nordenberg, and Director of the University of Pittsburgh School of Pharmacy, Janice L. Pringle. If we are to have any impact on the overdose death rate in our area we must stop the supply of illicit drugs. Attorney Song assured me that the application for a multi county “HIDTA” designation for our area is clearly justified and continues to be developed. I told her there is...