Insights: Market Sentiment

WuRevue Week Ending 5/14/2021

Top News:

05/10: Continuing the selloff trend since late April after hitting its historical high, NASDAQ dragged stocks lower.  Gasoline futures ended higher, after a ransomware hacking group breached the largest pipeline system in the US.

05/11: Concerns over inflation took center stage as China’s Producer Price Index showed an annual increase of 6.8%, fueling fears that higher costs may prompt tightening by central banks. Against this backdrop, investor sentiment has turned more guarded, despite assurances from Fed officials that there would be no imminent tapering of monetary stimulus (here, here).

05/12: The core US CPI rocketed to a 26-year high of 3% in April, fueling debate on whether cost increases are indeed as transitory as the Fed argues.  In response, the 10-year Treasury yield settled higher at 1.7%, spurring selling in major US stock benchmarks by at least 2%.

05/13: Yet another measure of inflation, the PPI, registered the biggest annual increase in its core rate since 2014.  After yesterday’s swoon, however, investors were in a glass-is-half-full mood, choosing to focus on the more positive initial jobless claims report and buying on the dip instead. 

05/14: Investors tried clawing back losses seen earlier in the week, despite softer than expected data in retail sales and consumer sentiment, which assuaged some inflationary concerns.

Heard on the Street:

“I can’t find any period in history where monetary and fiscal policy were this out of step with the economic circumstances, not one… If they want to do all this and risk our reserve currency status, risk an asset bubble blowing up, so be it. But I think we ought to at least have a conversation about it.”

— Stanley Druckenmiller of Duquesne Family Office said in a CNBC interview on 5/11/2021

“The Fed has their pedal to the metal trying to restore the pre-Covid labor market.  While the Fed can’t afford to appear uncertain, their dogmatic confidence that inflation won’t become problematic is equally suspect… Fragility will strike again, as valuations and positioning look stretched.”

— BofA Global Research, as quoted by MarketWatch on 5/12/2021

Longer Game:

The recent breach of Colonial Pipeline’s cybersecurity epitomized the vulnerabilities of critical infrastructure in the US.  Understandably, protection against cyber threats has been deemed a national security issue.  However, privacy concerns are looming, as illustrated by one recent case where the FBI was granted the authority to access computers, without their owners’ knowledge or consent, and to delete software.

Bonus:

April’s outsized CPI figure rekindled a percolating debate over whether inflationary pressure is temporary. While high when compared to data from the past 30 years, one month doesn’t make a trend in data series.  It bears close monitoring, nevertheless, because interest rate moves will rule market sentiment– just like the dominance of the One Ring in Tolkien’s classic!

WuRevue Week Ending 5/7/2021

Top News:

05/03: Secretary Yellen denied inflation to be an issue, saying “we have the tools to address it.”  Two measures of US manufacturing (here, here) painted a mixed picture in April, amid escalating concerns over supply chain disruptions.  Meanwhile, the world’s second most populous nation remains mired in new Covid infections, with nearly 7 million cases reported in April alone.

05/04: Reflective of a jittery stock market, particularly amongst tech names, Yellen sent investors into a tizzy when she  acknowledged that, “It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat.”  Consequently, investors rotated into more cyclical names seen as better positioned for further economic reopening.

05/05: More notable as a directional harbinger, a private employment index showed healthy gains recently.  Furthermore, investors cheered the robust expansion of US service-oriented businesses in April.  However, investors are reading the tea leaves on the Fed’s thinking as various officials expounded on the Bank’s monetary trajectory (here, here & here).  In a symbolic move for now, the US has reversed course by supporting a WTO proposal to waive intellectual property rights over vaccines.  Separately, the EU is re-examining economic ties with China, a reflection of recent heightened tensions.

05/06: US enjoyed healthy productivity gains, while labor costs remained in check during the first quarter.  As yet another positive, the initial jobless claims figure set another pandemic low.  Meanwhile, the Bank of England kept its monetary policy unchanged, as expected.  In Asia, relations between two key trading partners became further strained, after China suspended indefinitely high-level economic dialogue with Australia.

05/07: April nonfarm payrolls were noticeably lighter than expected, while the unemployment rate ticked up to 6.1%.  In response, the 10-year Treasury yield dipped to as low as 1.48%, as the Street discounted inflationary fears.

Heard on the Street:

“Listen, every client call I’m on… is talking about overheating… the Fed is right about most of these costs are transitory… The longer that policy stays this easy, as long as the liquidity in the system is excessive, then you run the risk that you overheat or you run the risk that … the exit from this policy may have to be a bit more aggressive.”

— Rick Rieder, CIO of BlackRock’s global fixed income, as quoted by CNBC on 5/04/2021

“Vulnerabilities associated with elevated risk appetite are rising. Valuations across a range of asset classes have continued to rise from levels that were already elevated late last year… The combination of stretched valuations with very high levels of corporate indebtedness bear watching because of the potential to amplify the effects of a re-pricing event.”

— Lael Brainard, Fed Governor commenting on the semiannual Financial Stability Report on 5/06/2021

Longer Game:

Characterizing government deficit as a “Ponzi gamble,” one academic believes two key variables that would allow such an endless rollover of debt  — low interest rates and fast economic growth — are now “uncertain,” given a much changed competitive landscape and the size of the nation’s projected debt.

As consumers of Big Tech products, we all experience the last line from the song “Hotel California”– “You can check out any time you like, but you can never leave.” The ongoing EPIC vs. Apple lawsuit is more than a quibble over the share of the pie; it can be an example of antitrust being exercised to guard against monopolistic abuses.

Bonus:

Concerned over sooner than anticipated rate hikes prompted by an overheating economy, a Bank of America survey showed hedge funds were “extreme” sellers of stocks, especially in sectors which had benefited from lockdowns. 

WuRevue Week Ending 4/30/2021

Top News:

04/26: Ahead of a week that was packed with earnings, the Fed meeting, release of key economic data, and Biden’s “American Families Plan,” investors proved cautiously optimistic, bidding up the S&P 500 to a record intraday high.  Durable goods orders rose in March in a welcomed reversal of trend from February.  Dr. Fauci appeared confident that the US should see a “turning around of the dynamics” in Covid infections in a few weeks.

04/27: Investors refrained from making major bets before the Fed’s meeting Wednesday. Indeed, indices finished largely unchanged, despite a sharp rise in one consumer confidence gauge in April.  Elsewhere, two major housing barometers (here, here) showed outsized increases in median home prices.

04/28: While acknowledging inflation has risen, the Fed downplayed its risks by keeping the Bank’s loose monetary policy and supportive language intact in its latest meeting.  In response, however, the market’s trading remained range-bound, consistent with its recent trend of consolidation.  Investors also focused on Biden’s $1.8T “American Families Plan,” set to be the focus of his first address to a joint session of Congress.

04/29: Owing to governmental support and the ongoing vaccine rollout, US GDP jumped at an annual rate of 6.4% in the first quarter, anchored by a 10.7% increase in consumer spending.  A separate report from the Labor Department showed first-time jobless claims marked another pandemic-era low.

04/30: Supported by massive government transfers, personal income and spending surpassed expectations and showed record gains in March.  Meanwhile, another consumer sentiment showed a record high since the pandemic’s onset.  Yet investors cheered little, concerned about the momentum’s sustainability, especially in an environment where market valuations already appear full.  Across the Atlantic, the Continent fell into a recession as the euro area’s GDP shrank for a second consecutive quarter by 0.4%.

Heard on the Street:

“While it is appropriate for the Fed to not comment on fiscal policy, it is entirely appropriate for monetary policy to take significant fiscal policy shifts into account in calibrating the stance of monetary policy, but the Fed is not doing this.  Monetary policy looks set to be too easy for too long.”

— John Ryding, chief economic advisor at Brean Capital, as quoted by CNBC on 4/27/2021

“Whilst I still think given where we are, given the ongoing support for markets from monetary policy, equities will probably stay up and may continue to drift higher, but I just think you need to exercise a degree of caution, be a little more selective about where you are putting your money.”

— David Marchant, CIO of Canada Life Asset Management told CNBC on 4/29/2021

Longer Game:

Space– the final frontier! That familiar StarTrek refrain is playing out as China, the EU, Russia and the US jostle (here, here) for primacy.  As a reflection of this heightened interest, “pure-play” ETFs have now been introduced to the investing public.

Bonus:

Anticipating no rate hike from the Fed until December 2022, a recent survey of market watchers also showed that 2/3 of respondents believe asset purchases are no longer needed in order to support either the markets or the economy. 

WuRevue Week Ending 4/23/2021

Top News:

04/19: Taking a respite from recent saber-rattling and heightened rhetoric, US and China sought common ground on climate change.  Separately, one central bank official of China acknowledged bitcoins as “investment alternatives,” representing a notable departure from its past stance.  Japan’s exports enjoyed stronger-than-expected growth in March, driven by demand recovery in Western Europe and Asia. 

04/20: Despite no obvious selling catalyst, US equities declined, as a pattern of consolidation of recent record gains took hold. Meanwhile, the GOP is reportedly coalescing around a $600B-$800B infrastructure deal, far short of the $2T envisioned by Biden.

04/21: The US administration reached its self-declared goal of 200MM vaccinations in its first 100 days.  In a war of words, congressional Democrats have roundly rejected GOP’s counteroffer on infrastructure spending.

04/22: Initial jobless claims declined to the lowest level since early March 2020, continuing a recent trend of relative improvement.  As further fodder for market bulls, a gauge of leading economic indicators portends further recovery momentum.  Meanwhile, existing home sales fell in March as tight inventory pushed median home prices to a historic high.  Such largely positive economic data notwithstanding, US stocks ostensibly succumbed to profit-taking pressure, after reports surfaced of the administration’s plan to raise capital gains tax on the wealthy.  Across the Atlantic, the ECB stood pat in its monetary policy, as expected by the market.

04/23: A survey of purchasing managers showed continued strength in the US economic recovery in April.  Eurozone economic activity also expanded in April, buoyed primarily by manufacturing, which has proved less susceptible to containment measures.  In Asia, India is battling worrisome levels of new Covid cases amid a disappointing vaccine drive.

Heard on the Street:

“We just hit a major milestone with 50% vaccinations in the United States, and that number is only going to get better in the United States and in Europe, which is a couple of months behind. So there’s really more room to run in this rally, but it’s probably going to come more from value and cyclical sectors than from the tech trade, which is more of last year’s.”

— Mike Labella, Franklin Templeton senior portfolio manager, as quoted by CNBC on 4/21/2021

“The cement of reality that is the earnings season is of no great help to a market trading on hope. Hope in the form of a cyclical recovery and a longer-term world where too many unicorns jostle for far too few slots.  This is the essence of a liquidity-fed rally and as the U.S. economy gains traction, the debate on tapering should restart anew and with it higher US Treasury yields hitting growth.”

— Sebastien Galy, senior macro strategist at Nordea, as quoted by Barron’s on 4/21/2021

Longer Game:

Recent moves by the US suggest multilateralism is back in vogue in Washington.  A sustained framework of international engagement, particularly with allies, will be needed as the US confronts China and Russia, two frenemies bound by a shared distrust of America’s dominance.

Bonus:

Americans are taking to the road once again, a sign of confidence in the ongoing recovery.  Indeed, according to the US Energy Information Administration, gasoline demand is back to over 90% of pre-pandemic level.

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.