It certainly is the dog days of summer. The weather is hot, the election looks to be almost over before it begins, and the Olympics are on TV. To quote our favorite singer, Zac Brown, it’s a great time to have our “toes in the water and ass in the sand, not a worry in the world, a cold beer in my hand.”

Meanwhile, the market seems to be acting like a mid 80’s Cadillac. Remember those big boats? If you had it in drive, and took your foot off the brake, it would do twenty without you even touching the gas. The momentum behind those cars seemed unstoppable once they got in gear.

Well, the Dow appears to be experiencing a Cadillac idle, as nothing really seems to be driving it, yet it steamrolls down the road to new highs. Sure there are minor bumps in its route. Brexit, Soros, random terrorist attacks…the list is fairly extensive. Yet, like a two-ton Caddy, the market doesn’t even seem to notice the blips as it rolls to new highs every week.

For those of you who know Zac Brown, the next line of the quoted song is, “life is good today”. Yeah, for the Dow, life is good. But, what about for those components of the Dow? How are they faring individually in the midst of this rally? We’re glad you asked, because it’s rather interesting. Because, as we sit here in the Dog Days of Summer, the companies of the Dow most enjoying their summer holidays are the Dogs of the Dow.

A quick side note, for those of you who don’t know what the Dogs of the Dow are, every year on December 31 a list of the highest dividend paying stocks in the Dow is made as a subcomponent. Historically, these companies have the highest yield due to having underperformed their peers over recent history. Hence the term “Dogs”.

The above chart details the year-to-date returns of all the Dow components. Highlighted in blue are the Dogs of the Dow…the ten stocks that entered 2016 with the highest yield. As you can see, the returns of this group have exceeded the returns of the overall Dow by a decent margin. To be exact, this group has returned 15.4% through August 12 versus a 6.6% return for the overall Dow.

Now, it’s certainly interesting, but not totally beyond expectation to see that the weakest stocks of the past are outperforming in the present. These are all large companies, after all, with large customer and revenue bases to fall back upon. And, the market is a very cyclical creature in that companies (and sectors) get hot one year only to fade back the next. For example, does it really surprise you that Exxon and Chevron are putting up positive retunrs this year after the lengthy oil slide of the past several? This type of cyclicality has happened throughout history and is why the Dogs of the Dow theory came into existence in the first place.

What we do find interesting, however, is the forward looking nature of the returns presented here. The market is known to be a great discounter of the future and we think the YTD returns are an impressive example of this in action.

Once again, why? Well, because this is an election year. And, this election appears to be steamrolling (like the Dow) to an inevitable Hillary domination. She is pulling ahead in the polls while Trump continues to shoot himself in the foot. If this trend continues, and I think it will, Hillary’s policies should dictate the direction of government policies for the next few years. Particularly if she wins in a landslide.

How exactly does this translate into the market discounting the future? When looking at Hillary’s policies, healthcare costs seem to be her biggest concern and drug costs in particular appear to be the bullseye that she is targeting. Thus, it seems to make little sense that Merck, Pfizer, J&J and United Healthcare (the four healthcare focused companies in the Dow) are all putting up big years. Seriously, who in their right mind wants to own these type of stocks if the new President of the United States is making them public enemy number one on her first day in office?

Yet, the returns for this group are particularly impressive…on average they are up 17.5% YTD. In all honesty, this is rather surprising to us. Yet, at the same time, it isn’t. Because, it demonstrates the incredible ability of the market to discount the future. These companies’ stocks should be under pressure due to the upcoming election disaster they have staring them in the face. But, they aren’t. And that, as an investor, is exactly what makes the market so interesting.

Random Musings From Our Travels…

The Olympics are on in full force and, once again, Michael Phelps has provided compelling footage. It almost begs the question of what will the announcers do without him? It’s gotten to the point where baseball games have been paused to watch him swim.

Five gold medals and one silver is quite the haul. We have often thought that swimming medals are overrated as it’s possible to accumulate a quite a few for doing something only slightly different. For example, you can swim the freestyle 50 meters, 100 meters, 200 meters and then be on a relay team doing it again. Bingo, four medals. Do this two times and you’re more highly decorated than Usain Bolt who happens to be The Fastest Human Being In History!

That being said, we really need to tip our hat and acknowledge Michael Phelps as the greatest Olympic athlete in history. His record total is beyond compare. His ability to return this year and win gold in so many events, competing against swimmers almost half his age, is superhuman.

And, he has broken the coolest record of all time. With his 13th individual gold medal, Michael Phelps broke the all-time record for individual golds. Formerly held by Leonidas, that record had stood for 2,168 years! To put that in comparison, for Dimaggio’s consecutive game hitting streak to last as long, it would have to not be broken before the year 4,109. Just saying, but it appears that Michael Phelps has set a record for the ages. Hats off to the greatest Olympian of All-Time!