The Perfect Storm, Again
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The Perfect Storm, Again
What the Market? - Dec 06, 2021
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What the Market?
Mr. Market decided to log on to WebMD and he’s become an expert on self-diagnosing himself with limited information. What can you say? Omicron freaked him out and his risk tolerance dropped dramatically. In light of the new COVID variant, investors are anticipating further supply chain bottlenecks and accelerated consumption. Where demand accelerates and supply can’t keep up, there is inflation. Keep an eye on inflation figures which are expected to hit 30+ year highs. For Mr. Market, it’s time to brace for another risk-off week.
What’s driving the market?
Rise and Rise again until Doves becomes Hawks? Fed Chairman, Jerome Powell, started off his speech last week moderately dovish but analysts were left feeling that the Fed was in fact, taking a more hawkish approach. The Fed is considering winding down the asset purchasing program which may accelerate plans to raise interest rates. Powell commented on the new COVID variant and associated inflationary pressures suggesting that new variant will continue to arise. While each variant will create uncertainty, the impact of each new variant will be lower as we learn, adapt, and vax! Imagine if the media spoke this way...anxiety levels might drop nationwide and the pharmaceutical industry would scream and...sorry, back to the topic. At this time, there is no significant data on Omicron, and the Fed’s models will adapt as new information is revealed. The biggest focus will be inflation due to supply chain pressures stemming from COVID responses. Powell stated that inflation should persist through the first semester of 2022, so...get used to it. No more dollar menu...for now. Yes, this still means its transitory, as supply chains adapt and commodity prices adjust, inflation should be controlled as the Fed uses its policy levers. No need to fret for now, just be patient and stop paying full-price on your amazon wishlist items.
What’s an investor to do?
● SD GIF
Investor mindset
Taking a wild guess, your portfolio got slammed this week. We all felt our stomachs churn a little bit (or a lot in our case). The current risk-off movement and unexpectedly hawkish Fed commentary did not help in light of the new COVID variant. A lot has happened these past few weeks and the biggest underlying principle is uncertainty. It's best not to look at your portfolio bleed out if you are confident in the positions you’ve picked.
Portfolio management
It’s not about inflation, COVID nor the Fed. It’s about uncertainty and valuations. Increased money circulation, a massive asset purchasing program running 24 months straight, and the increased popularity of investing in the retail crowd have pushed valuations to some of the highest points in history. Riskier names will probably continue getting hammered. Indices are adjusting after a long and unusual bull run. If you decide to exit, do it for the right reasons.
Two Opportunities to capitalize on during this down-turn:
Double-down on long-term bets. Many companies are trading at or near 52 week lows as result of macroeconomic conditions, mostly, uncertainty. Not a bad time to increase exposure on your most confident picks
Tax-loss harvesting: If you have long-term plays that you intend to hold throughout the current down turn and they’re trading at a loss, it’s possible to sell those shares at a loss, and buy back into the position. By taking the loss, you’ll be able to write it off your taxes and lower your tax exposure. Additionally, you will have lowered your dollar-cost-average on the position.
Keep an eye on the economy
CPI Report: As we head into the Fed’s last meeting of the year, inflation will naturally be the main focus of this week’s economic data. This month’s reading is expected to be the hottest one in decades (haven’t we seen that headline like 5 times this year already?). CPI is expected to accelerate to 6.7% from 6.2% last month. Not great.
Upcoming Earnings
Nothing noteworthy
Economic Calendar:
Monday: Eurozone investor confidence, Bank of England speeches
Tuesday: UK retail sales, Chinese trade balance, Eurozone GDP adjustment and economic sentiment,
Wednesday: US job openings and mortgage applications,
Thursday: Chinese CPI, US jobless claims,
Friday: UK GDP data, US CPI and consumer sentiment index
What we’re vibing:
Hawkeye by Marvel. At this point, Marvel has us. If they make it, we will watch it. Also, realizing that there are only two types of people in the world, Marvel people, and not Marvel people. So, if you know, you know. If you don’t, well check out Hawkeye, it’s fun.
3-2-1 by James Clear. The 3-2-1 Newsletter is one of the most popular newsletters in the world. Every Thursday, the latest issue is sent to over 1,000,000 people. Each message includes 3 short ideas from me, 2 quotes from others, and 1 question for you to ponder. It’s probably our favorite non-financial newsletter that we discuss every Thursday
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.