Over the years I've devoted volumes herein and elsewhere expressing my concerns (well... complaining) over the folly of government intervention into the functions of the economy.
Well, I suppose it's all fine and good to educate folks on (complain about) how the misallocation of resources (via government diktat) impacts the economy and the markets, in the end, however, our job here at PWA is to see the forest for the trees and, in the process, protect and grow our clients' wealth.
With the aim of finishing up our year-end message by the weekend, I'll simply quote from economist Peter Boockvar's morning note, on inflation, offer up a quick comment, and, as usual, report the morning numbers.
Our US sector weightings (expressed primarily within our portfolios by their respective tracking ETFs) in order of prominence are: Materials, Industrials, Consumer Staples, Energy, Financials, Healthcare, Tech and Utilities.
While virologists we're definitely not, for obvious reasons we need to stay intimate with global developments around Covid-19.
After posting our not-short Year-End Letter Part 4 yesterday (with a part or two left to come), I'll keep this morning's note short and sweet.
First, one more for those who believe the severe shortage of certain essential stuffs (such as chips for all manner of technology, including cars) over the past year has been all about COVID.
Our own general conditions index rose 2 points last week, thanks to our score for consumer confidence going from negative to neutral, along with a pick up in truck tonnage. The only negative mover among our 48 inputs was the sectors/SP500 ratio; back to negative, after just a week in the plus column:
Per yesterday's peek at the S&P 500 daily chart, the technicals paint a somewhat concerning picture about the go-forward prospects for US equities.
Yesterday morning we credited the then equity market selloff to a dire headline related to COVID and a market-rattling one suggesting President Biden's bill was kaput.
Before we explain what the first graph below represents, have a look at its price action during the 90s tech-fueled bull market:
110k more than expected housing starts and a generally better look to our sectors/SP500 ratios (financials, materials and energy outperforming the broader average of late) were offset by weakening small business expansion plans and a notable outperformance of consumer staples over consumer discretionary stocks (muddies the sector/SP500 results). Therefore, our PWA Macro Index broke even on the week:
Like we said in Part 2 of this year's year-end letter, we don't see inflation (nor commodity prices) rising in a straight line going forward. Nor does FedEx's Chief Operating Officer.
Well, Jerome Powell threaded the needle beautifully yesterday. That is, if his objective was to acknowledge that inflation is indeed worthy of the Fed's attention, without at the same time cracking the equity market.
Fed Chair Jerome Powell finds himself in quite the pickle this afternoon: In his post-meeting press conference -- after the delivery (at 2pm Eastern) of a decision to keep the Fed funds rate pegged between 0 and .25% for the time being and (odds favor) to speed up the pace at which their tapering back monthly asset purchases -- he'll be efforting to not crack the equity market with his newfound resolve to tackle (well, let's say to "address") inflation.
Just a quick look at the technicals and a report on the early-session action across markets this morning. My plan is to get Part 2 of our year-end letter out to you by the weekend.
Just performed the weekly scoring of our PWA Macro Index (was out of the office late last week), and, thanks to an uptick in commercial and industrial (C&I) loans, our general conditions barometer rose 4.18 points on the week:
If indeed stock market bulls are fretting (they indeed are) over the prospects for the Fed reducing its level of monetary accommodation during the months to come, one might think that two more reported studies suggesting that presently available vaccines are notably less effective against the Omicron variant would have them somewhat sanguine in the face of this week's Fed policy meeting.
Just a quick one this morning, as I'm technically out of the office till Monday, physically so right after I send this note. ⛷ 😎
Woke up this morning to news that weekly jobless came in at an amazingly low 184k! Clearly, employers who remain starved for workers are keeping the ones they have, and, make no mistake, paying them more for the privilege.
In their market-wrapping commentary yesterday the folks at Bespoke Investment Group found themselves a bit perplexed over yesterday's action in the stock market.
They pointed to notably bad news coming from the first study on vaccine effectiveness versus the Omicron variant:
On several occasions herein we've illustrated what we believe to be the go-forward (long-term) unsustainable outperformance US equities have enjoyed over the rest of the world this past decade.
As has become our custom in recent years, we'll devote the beginning of our 2021 year-end message to a metaphorical look at how we view what we do.
In yesterday's video commentary I pointed to a technically constructive immediate-term setup for US stocks.
Looks like, at least at the start this morning, it's playing out as the charts suggested.
Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:
This morning's jobs report was odd, to put it mildly!
Here are a couple of key tidbits from yesterday's release of the Fed's Beige Book (an assessment of conditions across Fed districts): emphasis mine...
Just sayin, media needs an excuse, and it matters mostly short-term and at the margins.
Headline:
Whether the positive market action this morning implies sudden sanguineness around the new variant, or comports with our view that -- change of tone aside -- the Fed has backed itself into a corner that really doesn't allow it to come out swinging on inflation, or the fact that on average Decembers are very good (simple seasonality), this morning's bounce in equities makes some sense.
