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What the Market? - Nov 08, 2021
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What the Market?
This week, Mr. Market looked a lot like Chris Tucker in Rush Hour when he gets kicked in the face and for a moment, he’s a bit dazed, and unsure who kicked him or how to process the moment. At first, Mr. Market was trying to anticipate if the Fed would do anything during the FOMC meeting and then trying to process the Fed’s decision on the backdrop of Congress passing Biden’s infrastructure bill. It’s a lot to process for investors and the white noise generated by the media doesn’t help much either. Get yourself a good pair of noise cancelling headphones and lock in.
What’s driving the market?
Let the Tapering Games Begin: After much anticipation, and 18 months after the beginning of the quantitative easing program, Powell announced it is finally time to start winding down the asset-purchasing effort. Despite much anticipation, analysts had still been fearing a recurrence of the infamous taper tantrum of 2013 which saw Treasury yields spike as investors believed the market would crumble without the Fed’s support. So far, it looks as though U.S. markets have taken the news in stride. The Fed will start reducing bond purchases this month by $15bn (from $120bn) while leaving interest rates near zero and maintaining other monetary policies to continue supporting the economic recovery. With one lever being pulled, the upcoming concern will be interest rates movements. Regardless of impact, it's good news that the Fed considers it has made significant progress and the macro environment is starting to look healthier.
Biden finally made fetch happen: Late on Friday, Congress passed a $1.2Tn bipartisan infrastructure bill. The economic booster package includes:
$550bn to be invested in America's infrastructure (e.g., roads, mass transit, rail, airports, ports, waterways, etc.) over the next 5 years.
$65bn will be used to improve broadband infrastructure, including tens of billions in electric grids and water systems, and roughly $7bn into plug-in electric vehicle chargers (didn’t see that one coming tbh).
The Build Back Better package is one of the largest economic packages in US history, focusing on climate change, affordable housing and healthcare as well as boosting early-age education. Expect markets to take this as a strong sign of political strength for Dems and that both parties can actually agree on some things (e.g., domestic development) despite backlash on the sheer size of the economic program. Spend money to make money, am I right? Well, we’ll see… For now, it's a fairly sizable lump of spending with its impact still TBD.
What’s an investor to do?
Investor mindset
If you’ve made it this far, go ahead and pat yourself on the back. We’re starting to exit the pandemic (economically at least). So long as Mr. Market continues to suck on molly lollipops it seems it will take a lot to change his mood. A stronger than expected jobs report and a smooth tapering announcement pushed equity indices towards all-time highs but don’t forget that these valuations are still unusually high heading into the end of the year. It’s a good time to start thinking about your 2022 strategy and trends. With Biden’s infrastructure plan set to kick off soon, your homework is to figure out how the world (but really you) will benefit from it.
Portfolio management
Q4 is typically the strongest quarter for the economy, and consequently a big one for multiple segments (looking at you consumer retail, payments and hospitality). With the reopening movement going global, and flight restrictions across the U.S., Asia and LatAm being lifted, expect certain travel-related segments to get a little boost before the year’s end. If you’ve been considering doubling down on those ideas, sooner might be better than later. Alternatively, some industries look a bit worn out, particularly tech and pharma which have been non-stop rallying for 18 months.
Keep an eye on the economy
Consumer Price Index: inflation is still a top priority for the Fed and consequently market analysts. The impact of low interest rates, quantitative easing and a reopening economy has brewed a molotov cocktail of inflationary pressures in a supply-bottleneck environment. Analysts expect CPI to continue its positive trend with a consensus reading of about 5.8% (4.3% core) but will be looking for hints that it may be peaking. Expectations are set for continued inflation for the next 6 months or so, as the QE program unwinds and supply chain issues are solved. Expect short term noise, but not too much concern.
Upcoming Earnings
Financials: SoFi, Lemonade, Coinbase, Affirm
Tech: DoorDash, Roblox, Palantir
Consumer Cyclical: AMC, YETI, Trip Advisor, Wynn
Economic Calendar:
Monday: Eurogroup meeting, Japanese leading economic indicator index and current account
Tuesday: Eurogroup Finance meeting, UK retail sales, Eurozone economic sentiment, US PPI
Wednesday: Chinese and US CPI, US jobless claims and monthly budget
Thursday: UK GDP, industrial and manufacturing production, Eurozone economic bulletin
Friday: US consumer sentiment and job openings, Eurozone finance meeting
A question from our readers: Credit or Debit?
Hands down always credit - the key is in discipline. The secret to using a credit card responsibly is treating it just like a debit card. But I like the feeling of seeing my balance decrease when I use debit or pay in cash. Again, it’s about discipline but let’s make it easier. Open a spreadsheet or notes file on your phone, add your debit balance, add your credit balance, and calculate the difference. Every time you make a transaction add it to your credit balance and feel your spending balance decrease. Then pay off the card in full at the end of the month so you never pay interest.
Okay, but why? Because Credit Cards offer loads of benefits and money back that you’re leaving on the table.
Security & Fraud protection:
Digital wallets use a tokenized version of your card and never actually share your information with a merchant protecting your account and identity
If someone steals your debit information and takes the money out of your account, it’s gone. Goodbye, nothing the bank can do for you. With a credit card the charge isn’t processed for some time and the issuer can easily negate the transaction and usually offers fraud protection so you’ll be reimbursed anyways.
Insurance & Protection: Credit cards offer great benefits such as purchase protection, extended warranties, travel perks like auto, phone, luggage, and travel health insurance among others just for being a card holder and using it on your purchases.
Last but not least, POINTS! You literally earn cash back when you spend.
Drop us a note in our Slack group feedback channel or email us at hello@whatthemarket.com with a question you’d like to see answered here!
What we’re vibing:
The Hard Thing About Hard Things by Ben Horowtiz. A contrarian and raw business read on what it takes to build a business. Many books like to lay out a clear 5-step framework and talk about the good parts. This book takes Horowitz’s account on the struggles and difficult decisions one must make to build a business.
Parts Unknown by Anthony Bourdain and now streaming on HBO: The original Bourdain show that inspired us to travel, see, smell, and taste the world is now streaming on HBO. Hell…after the last two years we’ve had, this is exactly the show to kickstart your travel bug and get you out there craving the world
Resources
A content guide to investing (books, books, books!)
Disclaimer
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.