So build me up buttercup! Don't taper my gains!
So build me up buttercup! Don't taper my gains!
What the Market - Aug 23, 2021
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What the Market?
Mr. Market is getting a bit anxious in anticipation of the Fed’s Jackson Hole Economic Policy Symposium this week. Mr. Market is contemplating how much more hawkish the Fed can get after the already more hawkish than anticipated minutes were released last week.
What’s driving the market?
You know how the anticipation of the things we fear is pretty much always worse than the reality? Well, imagine being Mr. Market with a whole lot of anticipation. Despite the best efforts of headline grabbing media outlets to inspire long-term inflation fear, it’s actually looking like the whole inflation thing is more transitory in nature. On top of that, jobless claims are at pandemic lows.
On that backdrop, all eyes are on the Fed’s Jackson Hole meeting which will be held between Thursday and Saturday. The main focus of the forum should be about the Central Bank’s plans to start shifting its monetary policy to a less dovish approach. Analysts expect to get some visibility into the Fed’s asset purchasing program which has provided liquidity to financial markets and supported underlying equity prices for over a year. As the economy recovers, it would be appropriate for policymakers to start tapering the program which has been running through $120bn a month!
What’s an investor to do?
Investor mindset
Building up expectations typically leads to disappointment (feel free to ask any of our exes). This is no different. Most likely, nothing big will be announced this week, and media outlets will sway stories and hypotheticals left and right to generate clicks. The Fed is known for its ability to say nothing with a lot of words. At this point, it’s only rational that the Fed begins looking at tapering the asset purchasing program. The tapering announcement may come, but the implementation may be months ahead. Keep your ear close to the ground.
Portfolio management
Hold on tight, things will get a little bumpy in the short-term mostly driven by the lack of information. The last time the Fed tapered its asset buying program in 2013 the S&P fell about 5% in four consecutive days (spoiler alert, it recovered as investors took a chill pill and thought about it for a moment). With tapering on the agenda, it’s likely that we may get more direction about interest rates as well. discussions.
Higher interest rates make the cost of borrowing money more expensive and high growth businesses tend to borrow a lot of cash. Bond prices may drop (as yields rise) and riskier assets may lose some of their attractiveness. It wouldn’t be out of the norm for investors to accelerate the transition of their portfolios toward value plays. It may be early in the cycle, but it’s never too early to buy a good business at a low price.
No need to panic sell those tech and growth plays you love quite yet. Focus on why you made those investments in the first place. If the answer was the Fed’s asset purchasing program, we know a few wealth management advisors that may be able to help you.
Keep an eye on the economy
Focus on the personal personal income and spending data that will be released on Friday. With rising concerns of the fast spreading Delta variant, consumer spending is expected to slow down. The slowdown will likely affect reopening areas such as travel and leisure spending (#getvaxxed). On the other hand, analysts expect personal income to keep its positive trend as people get back to work.
Economic Calendar:
Monday: US, UK and Eurozone PMI, Eurozone consumer confidence
Tuesday: US housing data,
Wednesday: US durable goods orders
Thursday: ECB monetary policy meeting accounts, US jobless claims and GDP data, Jackson Hole symposium starts
Friday: US personal income and spending data, consumer sentiment, Fed Chair speech
If you didn’t know, now you know
As protests continue in Cuba, the government has introduced new regulations on the use of social media and the internet, which critics say are aimed at stifling dissent. The decrees make inciting acts "that alter public order" a crime. They also order internet providers to cut access to those who "spread fake news or hurt the image of the state." Access to mobile internet in Cuba was only introduced in December 2018 but has given Cubans the ability to get news from sources other than state-controlled media.
This summary only covers the surface of the conflict. To read more, click here.
What we’re vibing:
Kind of Blue by Miles Davis. Quite possibly one of the greatest jazz albums of all time. The modal approach to jazz became so popular it changed the way jazz was taught and analyzed. If you’re listening for the first time, we’re so jealous!
What IF on Disney+. If you’re a Marvel junkie like us, than you probably already know that the first 2 episodes are out. We’re diving into the multi-verse and reimagining what our favorite characters could be. What if Captain America was actually Agent Carter? What if Thanos just decided to chill and be one of the homies?
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.