Calm down - get a hold of yourself!
What the Market? - Feb 07, 2022
This week, What the Market? partnered with the Dorson Community Foundation to teach a class on personal finance. We had a ton of fun getting to chat with the students at Dorson - be sure to check out the Vibing section to learn more about the Foundation and drop us a note if you’d like WTM to come to your organization or school!
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What the Market?
Looks like someone finally slipped Mr. Market a Xanax. The manic depressive finally chilled out for a bit after a month of throwing the market gains out with the bath water. Earnings season is in full swing, and volatility, while still high, appears to be trending downwards for the moment. Mr. Market’s recent tirade of mood swings and selloffs has made an impact on consumers, with consumer confidence dropping to 2011 lows (inflation and Omicron also key factors in sentiment). In a changing market environment that is still holding onto high valuations, more volatility is expected (a Xanax will only hold Mr. Market for so long), and the drop in consumer confidence is a tad unsettling. Naturally, inflation data will once again take center stage this week.
What’s driving the market?
The Jobby Trees are blooming: Friday’s Job Report reported 467K new non-farm jobs added to the economy, nearly double the most optimistic estimates! But wait, there’s more! December’s job reading was also significantly revised upwards, meaning the Omicron was much ado about nothing. That’s right Omicron, as far as the economy is concerned you’re not even a has-been, you’re a never-was! Total job openings are nearly twice the number of unemployed people. A surge in average hourly earnings feeds into rising inflation figures (higher wages means higher costs for companies which results in higher prices for products and services). No wonder the Fed has gotten so hawkish as of late.
No whammy, no whammy, STOP inflation! The Bureau of Labor Statistics is set to release the latest Consumer Price Index reading this Thursday. The report will provide crucial information to understand the current status of inflation and whether we have reached the peak yet. Controlling inflation requires the precision and care of a landmine remover and Powell has his work cut out for him. Analysts’ consensus is that inflation will continue rising albeit at a slower rate to somewhere between 7.0 and 7.6% YoY.
What’s an investor to do?
Earnings season has been a mixed bag so far. The number of companies beating EPS estimates is equal to the 5-year average but the amount by which companies are beating estimates is slightly lower than the 5-year average. With 56% of S&P 500 companies reporting earnings, we still have a lot of performance data on its way.
Most beats: Tech, Utilities, Industrials, Health Care, Real Estate
Most misses: Consumer discretionary, Materials, Communication Services, Financials, and Consumer staples
Unsurprisingly, valuations are looking to establish a new baseline meaning volatility will remain high and it is unclear whether or not we have bottomed out quite yet. Mr. Market is still overly sensitive to the incoming data. Expect last week’s erratic behavior to continue in the coming weeks with outbursts of volatility. If you’re holding onto your growth equities, we recommend some reading in stoicism like Meditations by Marcus Aurelius or Letters from Seneca, or a box of tissues, however you express yourself.
Keep an eye on the economy
Consumer Sentiment: The University of Michigan’s thermometer on how consumers feel is a great indicator of future consumption trends and a preliminary read on how comfortable the public is with the state of the economy.
Q4 GDP data: On Friday, we will get an initial estimate on US GDP for what is historically the strongest quarter of the year. We will get an initial feel on how the economic machine closed off year two of the pandemic and the impact of Omicron on the economy. From what the labor market told us, it should be a solid reading. Stay gold, ponyboy.
See here for the full economic calendar
The Curious Investor
No deep-dive this week
Consumer Cyclical: Hasbro, Blue Apron, Under Armour, Mattel, MGM Resorts, Chipotle, Harley Davidson
Consumer Defensive: Tyson Foods, Yum Brands, Pepsico, Phillip Morris, Kellogg, Goodyear, Coca Cola, Disney
Tech: ON Semiconductors, Uber, Lyft, Zillow, Coursera, Peloton
What we’re vibing:
Solitude & Leadership by William Deresiewicz. In his thought-provoking commencement speech at West Point Academy in 2009, Deresiewicz explores the relationship of two seemingly contradicting words. Deresiewicz delves into the challenges of teaching leadership in our institutions and the moral courage that leaders must embody to stand up for their beliefs. A WTM recommended essay not only for those in leadership positions, but also for those looking to tap into their creative mind.
Dorson Community Foundation: WTM is excited to announce that we’ve partnered with The Dorson Community Foundation in an effort to help spread financial literacy. The Dorson Community Foundation enriches and develops the next generation of leaders and agents of change from under-served communities; by emphasizing self-discovery and civic engagement, the Dorson foundation empowers students on their path to and through post-secondary education and onto career success. Check them out, and consider making a donation here.
A content guide to investing (books, books, books!)
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