Insights

WuRevue Week Ending 4/16/2021

 

Top News:

04/12: Fed Chair Powell said “it’s unlikely that we would raise rates anything like this year.” Meanwhile, St. Louis Fed President Bullard added that any discussion of monetary tapering would be premature until 75% of US population is vaccinated (vs. 23% currently).  Despite such reassurance, investor appetite was restrained ahead of the kick-off of quarterly earnings season. In its attempt to curb monopolistic powers of internet behemoths, China sanctioned its largest e-commerce retailer a record $2.8B in fines.

 

04/13: Owing to higher gas prices, CPI rose at an annual rate of 2.6% in March, marking a fourth consecutive monthly increase.  US regulators halted the use of J&J’s single-shot vaccine, pending an impromptu review of blood clot complications in women.  China’s March trade data showed continuing recovery, even if some question that such momentum can be sustained.  Crude oil received a boost, after OPEC increased its 2021 global oil demand forecast.

 

04/14: US economy accelerated in early spring, along with upticks in pricing and supply constraints, according to the Fed’s latest survey of economic conditions.  Given inflationary fears, Powell relieved some uncertainties by intimating the central bank would taper asset purchases “well before the time we consider raising interest rates.”  In a major PR coup for cryptocurrencies as they seek wider acceptance as a store of value, the largest US crypto platform went public.

 

04/15: Treasury yields receded, despite a pair of positive economic reports propelling major US indices to fresh highs.  Retail sales enjoyed the second largest snapback in March, supported by an accelerating economy and stimulus payments.  In another welcome development, weekly unemployment claims fell to the lowest level since the pandemic’s onset. 

 

04/16: US housing market remained a key bright spot in March, as homebuilding surged to an almost 15-year high.  Despite China’s record annual GDP growth of 18.3% in the first quarter, there remain concerns over how much growth will decelerate for the remainder of this year.

 

 

Heard on the Street:

“With the vaccination drive fueling a reopening of high-contact sectors of the economy, businesses are rehiring workers laid off earlier in the downturn, and making fewer new layoffs too.”

— Bill Adams, senior economist at PNC Financial Services, as quoted by MarketWatch on 4/15/2021

 

“My current concerns are driven far less by economic factors than by the combination of valuations, leverage, and the potential for imbalanced order pressure. With regard to the economy, I do expect some “reopening” strength, but I also believe that this prospect has been extensively priced into valuations.”

— John Hussman, head of Hussman Funds, in his April commentary update on 4/11/2021

 

 

Longer Game:

Can machine learning and harnessing big data give AI an edge in investing?  Not likely (for now at least), according to one researcher, due to the constantly shifting and inherently “adversarial” nature of financial markets.

 

 

Bonus:

As an example of retail mania in illiquid stocks, David Einhorn of Greenlight Capital highlighted a single deli in New Jersey with a market cap close to $90MM, despite ringing up less than $40K in sales over the past two years.

 

 

WuRevue Week Ending 4/9/2021

 

Top News:

04/05: Two major indices raced to yet another record high in a belated reaction to last Friday’s positive March employment data and encouraging signs of recovery in the service sector in the US in March.  Meanwhile, political maneuvering over how to foot the bill for Biden’s ambitious infrastructure plan (here, here) has begun in earnest.

 

04/06: A datapoint seen by Secretary Yellen as useful in deciphering labor market conditions suggested continuing recovery, even if its pace remained debatable.  The IMF upgraded global economic growth forecasts to 6 percent and 4.4 percent for 2021 and 2022, respectively. 

 

04/07: Telegraphing the unlikelihood of tapering or ending monetary stimuli for quite some time, the latest Fed meeting minutes noted that “the ongoing public health crisis continued to weigh on economic activity, employment, and inflation and was posing considerable risks to the economic outlook.”  JP Morgan Chase CEO Jaime Dimon believes the current US economic upswing could run into 2023, but also cautioned about the “not-unreasonable possibility that an increase in inflation will not be just temporary.”

 

04/08: With the 10-year Treasury yield receding to 1.63%, investors rotated back into growth and tech names, reassured by Chairman Powell’s reiteration of the Fed’s commitment to its current loose stance.  Supportive of the continuing need of this policy, the latest weekly unemployment claims showed a disappointing uptick again.

 

04/09: The Producer Price Index surged more than anticipated in March, registering an annual increase of 3.1% in its core rate, which strips out more volatile components.  Investors and traders remained at odds as to whether such data will force the Fed to hike near-zero short-term interest rate sooner rather than later.

 

 

Heard on the Street:

“I think investors are starting to realize that there will be a short-term rise in inflation, but it’s not going to be sustained.  Still, if the yield curve turns more positive or the 10-year yield rises but it’s because of economic growth, that’s a good thing. That’s what we’ve been waiting for these past 10 years!”

— Diane Jaffee, senior portfolio manager at TCW, as quoted by MarketWatch on 4/07/2021

 

 “The central interpretation of the FOMC minutes is of a Federal Reserve that remains doggedly dovish.  Policy rates will remain low until there has been a material recovery on the labor market. Forecasting recovery is not enough; it needs to actually happen.”

— Padhraic Garvey, head of Americas research at ING, as quoted by BusinessInsider on 4/08/2021

 

 

Longer Game:

As the first major economy to introduce a digital currency in 2020, China has been solidifying its “first out of the gate” advantage, prompting one market strategist’s prediction that “a digital yuan platform will aid in establishing the renminbi as the region’s predominant trade and reserve currency.”

 

 

Bonus:

Real estate has consistently comprised most of an American household’s net worth, particularly for those in metro areas.  According to a recent Fed survey, this favorable disposition towards this asset class isn’t likely to change in the near-term.

WuRevue Week Ending 4/2/2021

 

Top News:

03/29: A pall was cast over the market’s open, after reports of sizable margin calls totaling $30B and their unknown rippling effects surfaced.  Concerns over backsliding infection data in the US have prompted calls for a pause in reopening, even as the government races to widen vaccine eligibility.  The chief US trade negotiator suggested tariffs against Chinese goods won’t be lifted in the near future. 

 

03/30: Recovery optimism was reflected in one measure of consumer confidence, which surged to the highest level in a year.  Reflationary bets in stocks were kept in check, however, as the yield on 10-year Treasurys edged higher to 1.73%. US home prices registered an annual increase of 11.2% in January, notching an eighth consecutive month of gains.

 

03/31: Amid last-minute quarter-end portfolio rebalancing, investors were eagerly awaiting details of Biden’s infrastructure plan, expected after the market’s close.  Record low inventory and higher mortgage rates all conspired to cool two housing indicators (here, here).

 

03/25: Both the S&P 500 and Dow Jones Industrials saw milestones, following Biden’s unveiling of his expansive $2T infrastructure upgrade proposal.  US manufacturing retained its upward trajectory in March as a key index hit a 38-year high, pointing to gathering momentum in the U.S. economy.  However, the patchiness of recovery was evident in the latest weekly jobless claims report, which saw an unexpected increase.  Meanwhile, OPEC and its allies have agreed to boost oil production gradually over the next three months in a bet on recovery in demand.

 

03/26: While US and European stock exchanges were closed in observance of Good Friday, bond traders pushed the US benchmark yield above 1.7% again, after the government reported a net gain of 916K jobs and a slight dip in the unemployment rate to 6% in March.

 

 

Heard on the Street:

“Increasingly euphoric sentiment is a key reason for our neutral outlook as the cyclical rebound, vaccine, stimulus, etc. is largely priced into the market… Valuations today are signaling anemic long-term returns and rising rates are also a headwind for both income investors, who have piled into equities amid low rates, and corporate margins.”

— Savita Subramanian, head of equity research at Bank of America, as quoted by MarketWatch on 4/01/2021

 

 

Longer Game:

Why should Americans care about the escalating competition between the US and China? One key answer: the threat to the greenback’s preeminence as a global currency, which has served as the bedrock in sustaining decades-long trade deficits and budget shortfalls. One observer bugled a warning on a scenario whereby such dominance might be shared.

 

As the development of AI received a leapfrogging boost in 2012’s ImageNet competition, researchers, practitioners and governments alike are grappling with the challenge of regulating an emerging field without stymying progress.

 

 

For Your Consideration :

Almost two weeks after extending the federal income tax filing deadline to May 17^th, the IRS harmonized the deadline for 2020 contributions to IRAs and health savings accounts to the same date.  A person under age 50 can contribute $6,000 to an IRA, while those older can contribute up to $7,000.

 

 

WuRevue Week Ending 3/26/2021

 

Top News:

03/22: US saw a pair of positive vaccine developments (here, here), while France began reimposing lockdown to contain a third wave of infections.  Existing home sales declined 6.6% in February from the prior month as inventory remained constricted. Investor appetite for risk in emerging markets was curtailed, after Turkey abruptly sacked its third central bank chief in two years.

 

03/23: Investors took some money off the table as Fed Chair Powell and Treasury Secretary Yellen began their two-day congressional testimony. Caution also stemmed from extended lockdowns announced in Germany and in the Netherlands, as well as nagging concerns eroding public perception of the AstraZeneca vaccine. 

 

03/24: February’s weak durable goods orders report was dismissed as temporary, following some notable strength in prior months.  Vaccine rollout, steady reopening of the economy, and additional governmental stimulus all helped the U.S. private sector register a substantial increase in business activity in March.  Meanwhile, both the Eurozone and the UK also saw glimmers of a nascent recovery this month. 

 

03/25: Biden is targeting infrastructure upgrades, reportedly with a price tag of $3T, as his next major initiative.  Initial unemployment claims were at the lowest since March 2020, providing some fodder for bulls focused on the recovery narrative. Despite this encouraging movement, enthusiasm was capped early in the session by the Fed Chairman’s hint that the central bank will “gradually” roll back monetary support.

 

03/26: Largely in-line with expectations, personal income and spending declined in February on the heels of a robust January.  Meanwhile, the headline figure for the PCE Index, the Fed’s preferred measure of inflation, inched higher to 1.6%.  Consumer optimism continued to rise in late March, due to vaccination progress and pending third stimulus payments.  In Asia, borrowing by Chinese state-owned enterprises fell to its lowest level in 10 years as the government seeks to clamp down on systemic financial risks.  An unfolding imbroglio over Chinese human rights abuses heated up between Europe and China (here, here).

 

 

Heard on the Street:

“Over the next few months, 12-month measures of inflation are expected to move temporarily above our 2 percent longer-run goal… However, I expect most of this increase to be transitory and for inflation to return to—or perhaps run somewhat above—our 2 percent longer-run goal in 2022 and 2023.”

— Richard Clarida, vice-chair of the Fed., in a speech webcast on 03/25/2021

 

“There is some concern out there certainly that consumers are seeing now. They’re seeing the price of oil rise, the cost of goods is going up faster than the cost of services, and there’s a lot of inflation in the system.  The question is whether or not it becomes a self-fulfilling prophecy… We actually think that concern is a little bit overblown.”

— Yung-Yu Ma, chief investment strategist at BMO Capital, as quoted by CNBC on 03/26/2021

 

 

Longer Game:

Alarmed by the exchange of barbs between US & Chinese diplomats during their meeting in Alaska, the former chairman of Morgan Stanley Asia believes the key to a reset of the tense relationship lies in initiating negotiations within a framework of bilateral investment treaty, setting aside thornier political and trade issues.

 

The Covid pandemic has demonstrated the omnipresence and omnipotence of Big Tech.  Not surprisingly, this has garnered the attention of governments worldwide, including the US, where the House is gearing up to reshape the industry’s contours through antitrust regulations.

 

 

Bonus Item:

Latest reading of the New York Fed’s Weekly Economic Index confirmed an acceleration of economic momentum since mid-February.

 

 

WuRevue Week Ending 3/19/2021

 

Top News:

03/15: Fresh off their success in passing the $1.9T stimulus plan, Democrats are reportedly looking to raise taxes on corporations and higher income brackets, as well as introduce a new job and infrastructure bill.  Relative to depressed levels of the same period last year, China sustained recovery during the first two months of this year, leading some to question whether authorities may tighten policy to rein in lofty valuations.

 

03/16: Ahead of Wednesday’s Fed decision, investors booked some profits from recent highs, following some disappointing economic releases (here, here).  One industry barometer showed a slight tapering-off in the sizzling single-home market in early March.

 

03/17: Investors took comfort in the Fed’s dovish stance to maintain an accommodative monetary stance through 2023.  The Fed also revised upward its 2021 US GDP growth estimate to 6.5% from 4.2%.  Higher lumber costs and mortgage rates appeared to have dented housing starts in February.  One sell-side firm raised its GDP growth forecast for China to 9% in 2021.  Despite extended production cuts by OPEC+, the IEA said oil inventories were still 110 million barrels above their level a year ago.

 

03/18: As bond yields surged above pre-pandemic levels, owing to the Fed’s perceived tolerance of near-term inflation, investors renewed selling in stocks. The Fed’s deliberate decision in letting the economy run hot was corroborated by the worsened weekly unemployment claims report. Following the Fed’s lead, ECB President Lagarde also stated her belief that upticks in inflation are “blips.” In lockstep with these two major peers, the Bank of England dampened speculations of an earlier normalization in monetary policy as well.

 

03/19:  The Fed is ending a temporary exemption that affects a key bank capital measure, fueling further volatility in Treasurys. High-level talks between the US and China got off to a rocky start, diminishing already subdued expectations. Bank of Japan fine-tuned its monetary toolkit by allowing bond yields to fluctuate in a wider band around its 0% target, while ending its controversial annual purchases of stocks deemed to have distorted markets.

 

 

Heard on the Street:

“The biggest thing that Powell has said is the Fed is not fearful of the inflation boogeyman.” 

— Michael Arone, chief investment strategist at State Street Global Advisors, as quoted by CNBC on 03/17/2021

 

“Sustainable inflation will occur only if a lot of excellent outcomes materialize: reopening the economy fully, employment gains that spread to more parts of the workforce and economic growth at levels above recent history for an extended period. In many ways all that sounds wonderful.”

— Steve Wyett, chief investment strategist at BOK Financial., as quoted by MarketWatch on 03/19/2021

 

 

Longer Game:

While financial institutions and investors (e.g., here, here & here) have begun accepting bitcoins as more than a fad, there remains the critical debate over whether it can be an asset class with such limited liquidity, and how best to value cryptocurrencies beyond the “Tinkerbell Effect.”

 

 

Bonus Item:

As investors parse various data for signs of continuing economic recovery in the US, one research firm recently suggested consumer demand for leisure and travel may be on the mend, based upon Google Trends search volume.

 

WuRevue Week Ending 3/12/2021

 

Top News:

03/08: Even as the Administration’s $1.9T fiscal recovery bill became one step closer to passage, investors remained leery of upticks in Treasury yields.  Brent crude topped $70/barrel, after an Iran-backed militia attacked Saudi oil facilities.  Indicative of the ongoing global economic recovery, China’s latest export data rebounded sharply.

 

03/09: A retreat in long-term interest rates fueled a recovery in the tech-laden NASDAQ, which rebounded sharply from its recent correction.  Optimism among US small businesses improved only marginally in February, further illustrating the recovery’s unevenness.

 

03/10: Congress’ passage of the unprecedented stimulus legislation spurred reopening trades in stocks, pushing the economically sensitive Dow to a record close.  Assuaging inflationary concerns, February’s CPI saw a 1.7% annual increase while the core rate, which excludes more volatile food/energy costs, edged lower to 1.3%.  The Administration increased the purchase of vaccines to allow for “maximum flexibility” in meeting future needs.

 

03/11: Biden signed the $1.9T stimulus bill one day earlier than expected, helping to propel the Dow and S&P 500 to new heights.  Weekly filings for jobless aid have slowed to a four-month low but remain exasperatingly above pre-pandemic level.  Yields on European debt dropped, after the ECB said it will inject liquidity at a “significantly higher pace” to prevent a “tightening of financing conditions.”

 

03/12: US producer prices registered an annual increase of 2.8% in February, which spurred the 10-year Treasury yield to rise above 1.6% again.  One gauge of consumer sentiment rose in early March to the highest point in a year, due to increased vaccinations and widely anticipated passage of additional stimulus.

 

 

Heard on the Street:

“Basically I think rates have temporarily made the most of the move and should be more stable in the next few months, which makes it safer to be in stocks for now.”

— David Tepper, founder of Appaloosa Management, as quoted by CNBC on 03/08/2021

 

“We believe the recent equity volatility is likely to continue as investors seek to balance increasing optimism over growth with worries about higher inflation.  But while we expect conditions to remain volatile, the most recent developments on three of the main market drivers — stimulus, pandemic news, and inflation data — point to further equity upside.”

— Mark Haefele, CIO at UBS Global Wealth Management, as quoted by MarketWatch on 03/12/2021

 

 

Longer Game:

Should inflation be a concern?  Between the fiscal recovery aid passed by Congress and the expansion of the Federal Reserve’s balance sheet since the pandemic’s onset, the US has pumped approximately $10T into the system, about half of the country’s annual GDP.  While inflation may not be a near-term concern due to the slack in employment and wage growth, it is certainly a cloud worth watching in the medium-term, as debate continues over how such unprecedented liquidity should be assessed (here, here). 

 

 

Bonus Item:

A double dose of good news– Vaccine rollout continued to accelerate in the US, where approximately 25% of the population over 18 years of age have received at least one jab.  Additionally, a potential fourth US vaccine, currently under late-stage trial, reported encouraging data.

 

 

WuRevue Week Ending 3/05/2021

 

Top News:

03/01: Australia’s central bank unexpectedly moved to keep a lid on rising yields, helping to calm some recently frayed nerves. Investors also took some comfort in a pair of positive developments on the vaccine front (here, here).  Meanwhile, economic recovery in February continued to be led by manufacturers in the US as well as in Europe (here, here).  Similar upbeat data was replicated in Asia, where Japan’s manufacturing saw growth for the first time in almost two years and China’s privately-owned factories also registered expansion, albeit at a more tepid pace.

 

03/02: After yesterday’s run-up, China’s top banking regulator cast a negative pall on trading, after the official warned of “the risk of the bubble bursting of foreign financial assets.”  Meanwhile, a voting member of the Fed, Lael Brainard, said, “A burst of transitory inflation seems more probable than a durable shift.” 

 

03/03: With the incremental rollout of vaccines worldwide, all eyes will be on the next leg of economic recovery, the service sector, where activities trended higher in select regions in February (here, here,), the Eurozone being a notable exception.  Economic data aside, stocks came under pressure due to nagging concerns over bond yields.  Resource-rich Australia confirmed its exit from a rare recession by 4Q of 2020.

 

03/04: Fed Chair Powell failed to assuage investors already fretting over higher rates, after he noted the Bank would be “patient” with higher inflation expected this year.  A slight uptick in weekly jobless claims also helped push the NASDAQ into corrective territory. Across the Atlantic, the UK hiked its corporate tax rate to 25% and expanded personal income tax base in order to pay for a six-month extension of its fiscal recovery measures.  Retail sales fell precipitously in the Eurozone in January as a result of more restrictive pandemic measures.

 

03/05: US nonfarm payrolls increased more than expected in February, thanks to a recovery in the leisure and hospitality sector.  Gasoline prices may see a jump, after OPEC+ surprisingly agreed to extend production cuts through April.  In Asia, China set a GDP growth target of at least 6% this year, reflecting its confidence.

 

 

Heard on the Street:

“It is unlikely that the Fed will let US real yields rise much above 0%, given high levels of public and private sector leverage… An associated 10-20% sell-off in US equities would also focus minds. But before then, the pain currently being handed out to Growth-tilted equity portfolios could get worse.”

— Citi’s global strategy team, as quoted by MarketWatch on 02/28/2021

 

 

Longer Game:

Warning that China could soon replace the U.S. as the world’s “AI superpower,” the bipartisan National Security Commission recently issued its recommendations, including: 1) increase R&D spending to $32 billion a year by 2026; 2) establish a new advisory body to help guide policies; 3) relax immigration laws for AI experts; 4) create a new university to train civil servants, and 5) accelerate the adoption of new tech by intelligence agencies.

 

 

Action Item:

When was the last time you checked your credit report?  Prior to the pandemic, every consumer was entitled to a free credit report from the Big Three agencies every year.  However, you can now access it every week through April 2022, gratis.  Even if you are not seeking credit, it’s important to verify items contained in the databases, given the number of consumer complaints of inaccuracies has more than doubled to 282,000 in 2020. 

 

 

WuRevue Week Ending 2/26/2021

Top News:

02/22: Investors fixated on the recovery and reflationary narrative as the 10-Year Treasury yields zoomed higher to pre-pandemic levels, having started the year at below 1%.  Confirming this optimism, a measure of leading economic indicators saw “broad-based” gains in January.  Elsewhere, China urged the lifting of US sanctions and tariffs, after Biden told European allies “we must prepare for long-term strategic competition with China.”  Business climate in Germany rebounded in February, where improvements were seen in both current and future expectations.

 

02/23: In his congressional testimony, Chairman Powell appeared committed to the Fed’s ongoing loose monetary policy, given the economy is “a long way from our employment and inflation goals.”  Biden’s $1.9T fiscal recovery bill took one step closer to a House vote, expected by week’s end.  In tandem with the promise of more federal aid, Americans grew more confident in the economy in February, even as they remained worried about the pandemic’s duration. Registering the strongest annual growth in over six years, home prices increased 10.4% in December.

 

02/24: J&J’s single-shot vaccine is expected to be approved by the FDA on Friday.  In a second day of testimony, Powell reiterated his commitment to monetary stimuli until early 2022, at least.  Both reports propelled US equities higher.

 

02/25: A notable decline in initial weekly jobless claims to a three-month low and January’s stronger than anticipated durable goods orders pointed to continuing recovery.  However, US indices, particularly growth stocks, saw steep losses due to surging yields (telegraphed already in last week’s WuRevue).

 

02/26: The market struggled to regain momentum, despite evidence of robust consumer spending in January, which showed the biggest increase since last June, thanks to governmental stimuli. Meanwhile, the so-called PCE price index, the Fed’s preferred gauge of inflation, crept up at an annual rate of 1.5%.  Consumer sentiment inched higher throughout February, remaining well below its pre-crisis peak, however.

 

 

Heard on the Street:

“Around the globe value is trading at extremely deep discounts relative to growth. No matter how we measure valuation, value-to-growth discounts are wider than 95% of the respective country’s or region’s history — except in Australia.  The tailwinds of Brexit and rapid COVID vaccination make the U.K.’s low valuation especially attractive.”

— Rob Arnott, founder of Research Affiliates, as quoted by MarketWatch on 02/24/2021

 

 

Longer Game:

The bitcoin/cryptocurrency craze has the Street divided.  Charlie Munger, the vice chairman of Bershire Hathaway and long-time partner of Warren Buffett, had this to say: “I don’t think bitcoin is going to end up the medium of exchange for the world. It’s too volatile to serve well as a medium of exchange… Bitcoin reminds me of what Oscar Wilde said about fox hunting. He said it was the pursuit of the uneatable by the unspeakable.”

 

Biden ordered a review of supply chain vulnerabilities in four areas: computer chips used in consumer products; large-capacity batteries for electric vehicles; pharmaceuticals and their active ingredients; and critical minerals used in electronics.  It remains to be seen what remedies would be prescribed to shore up weaknesses.

 

 

Bonus:

US is poised to enjoy a dramatic ramp-up in vaccine rollout: excluding trial vaccines not yet approved, the Administration believes an additional 545 million dosages will be distributed from now until the end of July.

 

 

WuRevue Week Ending 2/19/2021

Top News:

02/15: While US markets were closed, one key Japanese stock index touched its highest level since 1990, after the world’s third largest economy said its 4Q GDP expanded at a faster than expected annualized rate of 12.7%.

 

02/16: Participants took note of the continuing rise in the 10-year Treasury note yield, thanks to optimism over the Covid-19 fight (here, here and here) and likelihood of more fiscal stimulus.  Across the Atlantic, EU’s 4Q GDP fell by 0.4%, sparking concerns of a double-dip recession.  At the same time, the bloc’s largest economy saw an unexpected improvement in future economic expectations, even as current conditions remain challenging.

 

02/17: Fueled by governmental recovery schemes, US retail sales leapt 5.3% last month, far outpacing meager expectations of a 1% increase.  January’s Producer Price Index, which rose at the fastest pace since 2009, also affirmed the US economy’s recovery trajectory.  Meanwhile, UK’s latest weak CPI figure in January suggests the accommodative monetary stance is unlikely to budge.

 

02/18: The US labor market remains bleak as new weekly jobless claims unexpectedly ticked higher.  A notable decline in single-unit housing starts in January spelled no relief for a tight housing market, where investors were also parsing the implications of falling mortgage applications due to rising interest rates.

 

02/19: For now, the housing market remains one bright spot, as existing home sales rose for the second consecutive month in January.  A flash reading of Eurozone economic activities reached a two-month high in February, when manufacturing continued to outshine the services sector.  Hampered by renewed lockdown in January, UK’s retail sales decelerated precipitously; February’s economic levels appeared to have arrested further declines, however.

 

 

Heard on the Street:

“In reality the worst-case scenario for equity investors would be a selloff in [Treasurys] accompanied by widening credit spreads and a strong dollar.  To date, higher US bond yields have not been able to arrest the decline in the greenback — real interest rates are still negative.”

— Sean Darby, global head of strategy at Jefferies, as quoted by MarketWatch on 02/16/2021

 

“Our current recommendation is to stay tactically neutral for the next few weeks to see whether risk-asset valuations can revert to rationality. This means keep existing investments in the market, but hold fire on new deployments of cash.  If valuation reverts to rationality…then investors can safely deploy new cash into the market.”

— Dhaval Joshi, investment strategist at BCA Research, as quoted by MarketWatch on 02/19/2021

 

 

Longer Game:

With the leading benchmark for oil in the U.S. topping $60 a barrel for the first time since Jan. 2020 and other industrial metals gaining in recent months, can the rally in commodities be sustained?  Yes, according to one analyst, who believes the fifth so-called supercycle in the past 100 years has begun.

 

While anticipating a steady recovery in the US, one market strategist highlighted two deteriorating trends in America’s labor market, with worrisome implications for economic growth and political stability.

 

 

Bonus:

Veteran investor Mark Mobius shared his thoughts on opportunities in emerging markets, the likelihood of U.S.-China decoupling, inflationary prospects, and the greenback’s status as reserve currency.

 

 

WuRevue Week Ending 2/12/2021

 

Top News:

02/08: Biden said “international rules” would inform his dealings with China, a relationship he characterized as “extreme competition.”  Secretary Yellen made the case for the administration’s $1.9T recovery bill as a means to achieve full employment next year.  China has formalized antitrust rules designed to rein in the threat of Big Techs in a one-party state.

 

02/09: Touted as one of Yellen’s preferred measures of the US labor market, the latest JOLTS report confirmed jobs recovery has stalled, due to continuing weakness in the leisure and hospitality sectors.  Optimism among US small businesses continued to deteriorate in January, as future expectations were stymied by an uncertain pandemic outlook.

 

02/10: Chairman Powell reiterated the loose monetary policy will be maintained in order to achieve the Fed’s twin goals of maximum employment and a sustained 2% inflation over time.  Notwithstanding some concerns, January’s data showed all quiet on the inflationary front as core CPI decelerated to 1.4%. 

 

02/11: Seesawing investor sentiment resulted from the “fear of missing out,” juxtaposed against a less than sanguine weekly unemployment claims report that pointed to a struggling labor market.

 

02/12: Consumer sentiment sank to a six-month low in early February, due to a decline in expectations for future financial security, particularly amongst lower-income households.  Indicative of the severity of economic distress, UK saw its 2020 GDP shrink by 9.9%, the worst since 1709.

 

 

Heard on the Street:

“Sure, equity investors like the idea of more fiscal stimulus as long as bond yields and the Fed do their part not to upset the balance. However, the rate at which the bond markets has been pushing yields higher in the past week should be seen as a warning that the bond vigilantes may have been in hibernation for a long time, but their day in the sun may be coming quicker than expected.”

— Steven Ricchiuto, U.S. chief economist at Mizuho Securities, as quoted by MarketWatch on 02/09/2021

 

“Although there are frothy segments of the market that are detached from fundamentals, we do not see bubble conditions more broadly.  Instead, we see a stock market that is trading at a premium to historical valuations—partly justified by low rates, a shift in sector composition toward higher-valued growth sectors, supportive monetary and fiscal policy, as well as cheaper access to markets (i.e., secular decline in commissions and fund fees).”

— Keith Lerner, CFRA’s chief strategist, as quoted by MarketWatch on 02/09/2021

 

 

Longer Game:

As cash use dwindles, central banks are pushing ahead with digital currency.  One such leader is China, which is testing different pilot rollouts, including digital “red envelopes” worth $6MM in total for the Lunar New Year.

 

 

Bonus:

Can too much stimulus have unintended consequences?  Not in the immediate term— however, the 10-year Treasury breakeven rate, a barometer of inflation expectations, has crept up to its highest level since 2014.

 

As Asian countries and communities celebrate the Lunar New Year, what can one expect from the Year of the Ox?