MARKET RECAP

While the overall US stock market is still a little bit off its highs, the S&P 500 managed to close at an all-time high on Friday, helped by Apple, which was up by 2.8% on Friday, 10.88% for the week, 21.32% for the month and 36.07% year-to-date. Apple is now selling at 32x earnings, as recently as January of 2019 it was on sale at 12.5x earnings and in 2016 at 10x earnings. For the week, US stocks increased by 3.61% and international by 2.55%.

The market rallied this week as the Omicron variant does not appear as dangerous as initially feared, and as investors don’t seem worried about the long-term risk of inflation, with the 10-year treasury rate at 1.49%. That doesn’t appear to make sense, as the latest CPI report shows prices rising by 6.8% over the last 12-months. The biggest increase in 39 years. The general consensus is that inflation will drop to the 2.5 to 3% range by the end of next year. Five-year TIPS currently imply an inflation rate of 2.8%.

The market is pricing in three 1/4% increases in interest rates in 2022, in June, September and December.

MARKET RECAP

MARKET RECAP

US stocks fell by 2.03% while international stocks were basically flat, off by 0.13%.US equities are now off by 4.77% from the November 8th high. The damage has been more extensive in small caps, the IWM is off by 11.55%. A lot of highflyers have been taking a big hit. Square is off by 37%, Paypal 40%,  Docusign 56%, and Draftkings 60%. These are just some random samples. Blame the Omicron variant or an acceleration of the tapering, or both, either way, stocks and other risk assets have been selling off.

Bitcoin was down by as much as 35% on Saturday. The SPY, IWM, and bitcoin all hit their closing highs on November 8th. It looks more and more that the argument that bitcoin is a non-correlated asset with equities is nonsense.

Nonfarm payrolls were up by 210,000 in November, the lowest monthly growth of the year and off of projections of about 500,000. However, the report did have some good news. The household survey indicates that payrolls actually rose by 1.1 million, indicating that huge numbers are moving to self-employment. The unemployment rate fell to 4.2%, just above the Fed’s estimate of the natural rate of unemployment. 600,000 people returned to the workforce, increasing the labor-force participation rate to 61.8%, a new post-pandemic high. Average hourly earnings were up by 4.8% year-over-year. All of this indicates a tight labor market and will give the Fed the go ahead to speed up its bond-buying program and accelerate interest rate increases in 2022.

The overall economy is strong. GDPNow is forecasting 9.7% growth in Q4.

Long rates are falling while short-term rates are rising, meaning the yield curve has been flattening. The short-end is pricing in interest rate increases in 2022, while the long end is lower anticipating lower long-term inflation or slower growth or both.

SCOREBOARD

MARKET RECAP

MARKET RECAP

Stocks were off slightly, down by 0.25% in the US. Outside the US, equities increased by 0.24%. Stocks sold off on Wednesday on the inflation news (see below) and on a weak 30-year treasury auction but recovered most of the loss on Thursday and Friday.

Inflation was up by 6.2% in October, that was the biggest one-year increase since 1990 and the fifth month in a row that inflation broke 5%. For the month, prices were up by 0.9%. Home prices were up by 16% in the third quarter compared to one year ago.

The Fed has been buying $120 billion in bonds each month, they have announced they will cut that amount by $15 billion a month. That means it will take eight months to put an end to the bond buying. And in the meantime, the Fed will be adding another $420 billion to its balance sheet. This, while inflation continues to accelerate. The Fed seems to be way behind the curve on this.

MARKET RECAP

MARKET RECAP

US stocks were up by 2.3% and international equities by 1.23%. As expected, the Fed said it would begin its unwind of its bond buying program but said interest rates would remain the same. Covid numbers continue to improve and to top it off, Pfizer announced it has developed an anti-viral that was 89% effective, topping the recent drug that Merck is bring to market (50%).

The October jobs report was excellent. The economy added 531,000 jobs, the biggest gain in three months. August and September numbers were revised up by 235,000. The current economy trails the pre-Covid total job number by 4.2 million. The unemployment rate fell to 4.6% from 4.8% and the participation rate remained steady at 61.6%. On the negative side, US worker productivity fell at an annualized rate of 5%, the largest quarterly decrease since 1981.

Jack Hough’s column in this week’s Barron’s is titled “Weird Finance”, and talks about NFTs, cryptos and more of the craziness that zero percent interest rates and money everywhere has unleashed. Somewhere down the line, if people ask “what were they thinking?”, this article might be a good place to start.

Tesla’s market cap increased by over $300 billion during the last week of October. On Tuesday, Avis went up in price, at its high, by 217% on Tuesday, but would close 35% off that number. Two examples of some of the mania in this market.

SCOREBOARD

SCOREBOARD

Why FAANG Stocks Have Been So Dominant

MARKET RECAP

Stocks finished the week just off the Thursday record high, up by 1.57% for the week. From September 2nd to October 4th, the overall US market fell by 5.1%. Since then, stocks have rallied and are now about 0.3% above the September 2nd close.

Stocks have managed to rally despite rising interest rates. The 10-year Treasury has increased from 1.19% on August 3rd to 1.66% as of Friday. Projected inflation is measured at 2.66%, the highest rate in 15 years. Over the last few weeks there seems to have been a shift from the mantra that inflation is “transitory” to something that will be a bit longer, maybe a lot longer, than that. The Fed has indicated that tapering will start in November. Oil prices are at the highest level since 2014. Estimates for economic growth are falling. The Atlanta Fed’s GDP model now projects Q3 growth at only 0.5%. In China, the Evergrande Group, the real estate behemoth, is on the edge of bankruptcy, with a likely negative impact on the Chinese real estate sector, which represents 30% of China’s output. None of this seems to matter to the market, which is back at new highs.

Exxon is supposedly considering dropping several oil and gas projects, as directors are worried about carbon emissions. This at a time when energy prices are surging and capex across the industry is falling. Exxon’s board took a turn when a hedge fund with a 0.02% interest, Engine No. 1, managed to get their nominees added to the Company’s Board.

SCOREBOARD

MARKET RECAP

US stocks were up by 1.9%.

Surprise, inflation was up more than forecast in September, increasing by 0.4% from August and up by 5.4% year over year, the biggest increase since 2008. Supply chain issues, higher commodity prices and wages get the blame. The report confirms that the Fed will need to start tapering soon.

The combination of higher inflation and the hit the economy took from the Delta virus is weighing on economic growth. The Atlanta Fed now expects Q3 growth of only 1.2%, this is down from over 6% at the end of July. A JPM survey shows that 42% of respondents expect stagflation somewhere down the line. The good news is that Covid cases have been on the decline since August.

The copper/gold ratio hits its highest level since 2013 indicating strength in industrial demand.

SCOREBOARD

Durable goods hit a record in August, up 1.8% from July to $263.5 billion. Durable goods are product meant to last three years or more. The estimate was for a 0.6% increase. The big increase indicates that businesses are investing for the future.

Home prices continued to increase at record rates in July. It was the fourth straight month of record increases. The S& P CoreLogic Case-Shiller National Home Price Index was up 19.7% in the year that ended in July, up from an 18.7% annual rate in June. July marked the highest annual growth rate since the index began in 1987.

But the pace of increases might be slowing. The Conference Board’s consumer-confidence index fell to 109.3 in September from 115.2 in August and the share of respondents planning to buy a house in the next six months fell for the third month in a row.