Hot Vax Summer Markets?
The Curious Investor - Jun 14 2021
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What the Market?
Mr. Market is trying to get in the groove after some bumpy weeks of conflicting information. Hopefully the Fed’s meeting this week will help clear his head and continue pushing volatility lower so we can all enjoy our Hot Vax Summers.
What’s driving the market?
That awkward moment when your mood swings more than a kid at recess: Equity markets can’t quite find their happy place. Inflation continues to rise higher and faster than expectations while the Fed appears to think it’s a transitory issue, at best. In some sense the market wants to get on with its life and put this pandemic behind us but we’re still about 7M unemployed people away from reaching pre-pandemic levels in the labor market. That puts the Fed in a difficult place of finding a balance between continuing inflation-inducing conditions and getting the labor market back on its feet. Meanwhile, economic activity seems to be recouping and value stocks have been reaping the benefits. Industrial production figures and retail sales data should provide some support for the former this week, but will probably not be the focus of the week ahead.
What’s the Fed think about Hot Vax Summer?: Wednesday’s FOMC meeting will be the highlight of the week for America’s financial markets. Analysts firmly expect the Fed to stand by their prior dovish strategy. Powell’s speech is expected to center around the strength of the economic recovery and the impact of “transitory” inflationary pressures going forward. The Fed may also comment on tapering its asset purchase program and discuss timing of a potential interest rate hike. Powell’s speech and the Fed’s decisions should provide a clearer view of where we are heading and illustrate the flexible approach they will take moving forward. Expect the August conference to be an interesting one.
What’s an investor to do?
We are all aware of how erratic equity markets have been this past quarter. During the summer months (with lockdowns lifted), investors are reminded that the comfort of a sunny beach is far more comfortable than the contours of a trading desk. As a result, trading volume and volatility typically calm down in the summer. This is a good time to revise your strategy going forward as the macroeconomic backdrop continues to evolve. Take time to tune out the media and their incessant push of FOMO investments which go against the very nature of investing and evaluate your portfolio objectively by the figures.
As the vaccination effort and economic data demonstrate the strengthening of the economic backdrop, there is still room to focus on pre-pandemic sectors that may benefit from the recovery. As we transition into a quarter focused on inflation control there are multiple industries such as consumer defensive products, commodities, and financial services that may benefit both in the short and longer term. With growing expectations of a more hawkish Federal Reserve down the line it’s likely that growth stocks will continue lagging the overall market. The Fed’s meeting this week will set the tone and expectations for the summer.
Keep an eye on the economy
Aside from the Fed meeting this week, retail sales figures will be announced on Tuesday. Retail figures are expected to decline on a month-on-month basis as moderation sets in and stimulus programs start slowing down. It is important to look into which sectors are being impacted by inflationary pressures (e.g., motor vehicles sales increased 3.1% last month, but most of the increase can be explained from rising inflation in the segment!) and what that might mean going forward for companies in your portfolios.
The Curious Investor:
Much ado about nothing - Climate Change Edition: After the G7 Summit in Britain, the world’s wealthiest economies rallied around climate change and agreed to help developing countries move away from coal. Typical of politics, posturing was the main event filled with lots of barking and too little biting. Did anyone see details of the actions to be taken? The Group agreed to reaffirm its collective commitment to mobilise $100bn per year through 2025 from public and private sources. If that sounds nice, a quick reminder that that was the same goal they had aimed for in 2010 through 2020. Newsflash...they didn’t do it. Regardless of the political facade, climate change has been a key theme across developed nations and is a cornerstone of Biden’s infrastructure plan. Heading into the climate summit in Glasgow in November (COP26), consider exposure to renewables and adjacent businesses in the supply chain that will probably get a boost from the media attention.
Consider exposure to broad ETFs surrounding renewable energy, as well as the material handlers and suppliers associated with clean energy development: LIT, QCLN, PBW.
Alternatively, consider a higher risk approach through KRBN, a unique ETF focused on carbon credit trading that has grown ~75% in the past 12 months.
Tech: Adobe, Oracle, Blue-Prism
Consumer Services: H&R Block, Korn-Ferry International
Consumer Defensive: Kroger
Monday: Japanese and Eurozone Industrial Production data
Tuesday: UK unemployment figures and Bank of England speech, Eurozone trade balance, US retail sales, Industrial production and PPI, Japanese trade balance
Wednesday: Chinese retail sales and industrial production, UK CPI, US housing data, Federal Reserve meeting, economic projections interest rate decision and press conference
Thursday: Eurogroup meeting, Eurozone CPI, US manufacturing survey and jobless claims
Friday: Bank of Japan monetary policy statement, UK retail sales, Eurozone finance ministers meeting
If you didn’t know, now you know
After 12 years in office, Benjamin Netanyahu was unseated as Israel’s prime minister in a landmark vote that saw a coalition party take control. The new coalition party consists of eight distinct political parties with views ranging from the far left to the far right. The one thing they agreed on was that Netanyahu had to go. For the next two years, right-wing politician Naftali Bennet will serve as the PM before handing the reins to the left-wing party leader, Yair Lapid for the remaining two years of the term.
This summary only covers the surface of the conflict. To read more, click here.
What we’re vibing:
From Russia with Love by Just Iggy. WTM community member and NYC DJ, Just Iggy, puts on a nu-disco jam that will amp you up, get your feet moving, or give you hours of high-energy focus music.
BlacKkKlansman on Netflix. The 2018 comedy-crime film by Spike Lee and high profile actors like Adam Driver received multiple Oscar nominations and boasts a 96% approval rating on Rotten Tomatoes. An entertaining satire of historical commentary which is embedded in the ridiculousness of current events.
A second chance at love: Alzheimer's patient asks his wife to marry him again
WTM Mentions Performance Tracker
A content guide to investing (books, books, books!)
This writing is for informational purposes only and the author/s undertake/s no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. The author/s expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.