Ooo I'm so scared!
What the Market? - Nov 01, 2021
And so we’re back, not quite from outer space but you will find us in your inbox every Monday morning again! Here’s to hoping we all HODL’d our Bitcoin, ignored Janet Yellen’s proposal to tax coins collected in Super Mario, and whatever the hell Elon is saying this time. Where did we go? Oh many places, and Thomas moved to Spain so there’s that. With the summer coming to a close, it’s time to get our money working for us to pay for next year’s summer vacation!
Also, be sure to scroll through to the end for information on our new section. Questions from our readers!
Check out the WTM Watchlist for investment ideas!
Was this email forwarded to you? Subscribe for access to the Curious Investor [insert button]
What the Market?
Mr. Market, the quintessential manic-depressive, always finds a way to swing himself across the pendulum regardless of what’s happening. Despite recent lackluster economic data (e.g., GDP, inflation), Mr. Market is feeling confident and packing on the gains as the S&P continues to one of its best years in a long time. Coming up, Mr. Market will put his bi-focals back on to see what happens at the Fed’s November meeting which is expected to focus on tapering its asset purchasing program.
What’s driving the market?
So we meet again, Mr. Powell? The upcoming FOMC meeting this week is expected to focus primarily on the tapering plan on the asset purchasing program that started during the peak of the pandemic to stimulate the economy. As always with the Fed, don’t hold your breath for anything concrete. It could just be a meeting to talk about having a meeting to talk about the tapering plan. Given the slowdown of the economic recovery, and headline inflation reaching a 30 year high, it’s probably not the best time to reveal anything too big even though it may actually help reduce inflationary pressures. The consensus is that the tapering of the $120bn bond buying program may begin around the end of Q2 2022. Expect the Fed to also comment on the relative importance of a strengthening labor market and an assessment of inflationary pressures, and the flexibility surrounding policy decisions based on these factors.
Ooo inflation - I’m sooooo scared!: Would someone please feed the poor attention starved media? It seems they’ll do just about anything for a click or 5 seconds of dwell time on an article with all this talk of hyperinflation - Jack Dorsey’s tweets didn’t seem to help either. Perhaps it should be a requirement of any journalist writing about inflation to spend a couple months in Venezuela or Argentina, but I suppose the hyperbole gets us talking? Let’s start off by saying this is reckless behavior by the media, and the chance of this happening soon is unlikely. Anyways, the Fed will likely address inflation this week after last week’s PCE reading due to the interest it’s been getting. The aggressively dovish Federal Reserve still has both its main monetary policy levers (open market operations like quantitative easing and interest rates) at its disposal. In the context of this economy, inflation is evidence of a re-engaging economy. Want something to scare you other than your regular anxiety? Focus on supply chain bottlenecks which are backing up production and driving prices up (temporarily?). This too will be self-addressed as monetary policy shifts globally and markets self-correct. What? You never had a little bit of chaos in your life after a traumatic event? The world just had a pandemic, give it a sec to adjust all right. #TeamWorld
What’s an investor to do?
Despite the atypical pandemic year, the S&P 500 is having its best YTD performance since 2013, and seems to be picking up some tailwinds heading into the historically best quarter of the year for equity markets. Investors appear to be overly bullish despite the lackluster economic data as corporate earnings continue exceeding expectations (guess greed has no time for logic). It’s not a time to just let it all ride, keep an eye on your portfolio with cautious optimism heading into the end of the year.
Well, 2021 has certainly been a wild ride - investors seem pleased with how things have gone so far this year in the context of a pandemic. It’s important to recognize and address that the market we’re playing in now is a fundamentally different market than we were playing in 18 months ago. Retail investors are starting to sway asset class preferences globally (e.g., Crypto trading, increased FOMO investing aka “buy the dip” and YOLO investing in equity). I can’t believe that’s even a sentence but investing has become cool with the masses and social investing is here to stay.
Younger generations are looking for their “get rich or go broke tryin” strategies because what’s there to save for, am I right? Unsurprisingly, bonds are not nearly as popular as they once were. Why would they when I can stake my crypto for +10%? Rants of recklessness aside, many industries have experienced substantial growth this past year and a half, and it may be healthy to start considering downsizing some positions and continue cycling from growth to value as normalcy sets in.
I’m looking at you and that 300%-return company you bought last year and are still clinging to. Even if you’re bullish on the company and industry, it may be healthy to diversify the size of that position as it is unlikely the fundamentals of that play coincide with its current equity price. Trim it down, it’ll look bigger (or so we’ve been told). Alternatively, consider consolidating your portfolio on the plays that you really believe in.
Keep an eye on the economy
October Jobs Report: After a disappointing September reading, analysts expect to see a pick up in hiring this month and the unemployment rate should take another minor step towards pre-pandemic levels. Even though we’re still far from where the Fed would like us to be, there is a record number of job-openings right now and people have been quitting looking for better opportunities. With weekly jobless claims measures breaking below the 300k mark, there is a certain degree of positivity regarding this month’s reading. Remember the PCE and jobs reports are two of the most fundamental indicators the Fed uses to adjust its policy.
Energy: ConocoPhillips, Chesapeake, Marathon, Dominion, Duke
Tech: Zillow, Match, Lyft, Coursera, Activision Blizzard, Uber, Airbnb, Pinterest, Square, Roku
Pharma: Pfizer, Amgen, Moderna, Novavax, Regeneron
Consumer Cyclical: Estee Lauder, Ralph Lauren, Under Armour, Marriott, Kellogg, Expedia, Wynn, Avis
Others: Apollo, CVS, Qualcomm, Peloton, Goodyear, Vulcan Material, Clorox
Monday: US, Chinese and UK Manufacturing PMI, US construction spending, Bank of Japan Monetary Policy Minutes
Tuesday: Bank of Australia interest rate and monetary policy, Eurozone manufacturing PMI, ECB Speech, beginning of FOMC Meeting
Wednesday: ECB President speech, Eurozone unemployment rate, end of FOMC Meeting and speech, Chinese, US and UK Services PMI, US factory orders
Thursday: Eurozone growth forecast, Services PMI, Bank of England monetary policy summary and speech
Friday: US jobs report, Eurozone retail sales, ECB Speech
A question from our readers:
No question this week - drop us a note in our Slack group feedback channel or email us at firstname.lastname@example.org with a question you’d like to see answered here!
What we’re vibing:
Deep House Set by Yotto. The Finnish DJ and producer has created another masterpiece of deep and mellow set to get you where you want to be. This time you can enjoy the views from the Bengtskar lighthouse. Maybe one of the best sets of the year…
Why Nations Fail by Acemoglu and Robinson. A WTM macro development favorite and a “bible” to those in international development. For those interested in understanding why countries can be so different and why poverty seems to never end, this may be a good read for you.
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.