Monday Morning Market Insights: Last Week in Review with Rusty Vanneman, Vol. 45

  • Happy Monday and holiday-shortened Thanksgiving week! 
  • The S&P had a slight gain last week and hit new all-time price highs.  When it comes to new highs, according to Bespoke Investments’ Weekly newsletter (November 2021), the S&P 500’s closing high lasts week was the 66th record closing high of the year, putting this year all by itself in second place ahead of 1964 and 11 shy of the record of 77 back in 1995. With just a little over a month left in the year, we would need to see a rate of two record highs per week to tie the 1995 level.
  • That said, the gains last week were not broad-based.  It was large-cap growth that posted strong gains, while virtually all other size/style market components were down for the week.  International markets were also down with the leading cause of losses for last week due to the latest uptick in COVID cases, particularly in Europe. As the German health minister even said last week that all Germans will be ‘vaccinated, cured, or dead’ by Spring.  Another factor driving relative performance last week was that inflation expectations (looking at TIPs yields versus Treasury yields) also dropped.   Small caps stocks’ relative performance, for instance, have been positively correlated to inflation expectations.
  • With the renewed fears regarding COVID-19, the Ten Year Treasury Yields dropped to 1.54% last week after rising as high as 1.65% earlier in the week.   They are opening the week at 1.58% (Yahoo Finance, November 2021).
  • Digital assets have often been considered a potential inflation hedge, and with inflation expectations dropping last week, Bitcoin prices also dropped last week from their recent new all-time high a few weeks ago, dropping to $58,000 by the end of last week (Yahoo Finance, November 2021).  Ethereum also moved lower last week to about $4,300 (Yahoo Finance, November 2021).  
  •  How about this for a potential peak in digital assets — the Staples Center in Los Angeles will be renamed the Crypto.com Arena?  Yikes.
  • This week’s economic schedule is pretty full until the holiday.   On Wednesday, we will get the latest update regarding US GDP for the 3Q.   The consensus is that real GDP increased 2.1% annualized in Q3, up from 2.0% in the advance estimate of GDP (Calculated Risk Finance & Economics, November 2021).
  • The 3Q GDP number was a by-product of the summer growth concerns over COVID-19.  Currently, the data for the 4Q is mostly showing that growth is accelerating again after the “growth scare” from the 3Q.  According to GDPNow (November 2021), US GDP is tracking an 8.2% increase.   Let’s see how this estimate holds up given the latest COVID news.
  • On Monday morning, President Biden announced he is renominating Jerome Powell for a second term as Federal Reserve chair. President Biden is also putting forth Fed Governor Lael Brainard as vice-chairman. The markets initially like the news as Powell is the “devil you know.” Brainard’s selection is more interesting.  She was considered the strongest candidate to potentially replace Powell (and she probably still will eventually).  She has worked on several issues important to the Biden administration, particularly the need for the Fed to prepare the financial system against major climate change events. She is also a digital asset fan, as she has in the past been a strong proponent of a digital dollar to help the “unbanked” to have more access to the financial system.
  • Getting back to inflation, let’s consider the view of another fave of mine Oliver Renick.  He’s on TDAmeritrade TV, but his weekly Wednesday commentary (short and sweet) is almost always thought-provoking and fun to read.  In last week’s commentary, he notes the US dollar’s recent rally puts it at the highest since spring 2020. This is a full reversal of the COVID-era downtrend. As Oliver writes,

“But wait – inflation is the hottest in thirty years, shouldn’t that erode the value of the dollar? The dollar’s reversal higher tells us that the inflation impact of COVID-era policy on the currency has been priced in. More specifically, inflation has gotten to the point now that markets are pricing in a response to inflation by way of interest-rate hikes that are strengthening the dollar. It’s not just the future of the Fed being priced in, though. Every time the White House announced additional stimulus last year, the dollar immediately dropped. President Biden just signed a $1 trillion spending bill and the greenback’s run right through it. This tells us that fiscal spending going forward is very different than the helicopter cash that propelled the COVID bull market.”  Oliver Renick’s Weekly Commentary

  • Yet more on inflation from The Inflation Guy last week. Despite the dip last week in inflation expectations off all-time highs, he believes it’s not too late to get inflation protection: “let me just assure you: the train has left the station, but it is still making stops. There’s time to get on board.”  The Inflation Guy was on The Weighing Machine podcast last February.
  • Why all this concern over inflation, though?  As Dan Ackroyd said years ago: inflation is our friend!
  • A great tip from a former analyst/colleague of mine regarding how inflation has had another benefit:  401(k) and gifting limits raised in 2022.
  •  Ben Carlson, who has one of the best daily financial commentaries, had this comment from last week that was just loaded with goodies including inflation and distribution of wealth stats in his worst-case inflation scenario  article, which also included a reference to one of my favorite movies “Dazed and Confused.”

  • An interesting survey from the CFA Institute looked at the most popular downloaded white papers from investment professionals on their website last year. The top 5 in order: 
    • crypto assets
    • sustainable investing
    • climate change
    • technical analysis
    • behavioral finance.
  • It’s not too early to start thinking of New Year Resolutions, like turning off the distractions of notifications. According to the WSJ: Dr. Mark’s research finds people switch screens an average of 566 times a day. Half the time we’re interrupted; the other half we pull ourselves away. Breaks—even mindless ones like scrolling Facebook —can be positive, replenishing our cognitive resources, Dr. Mark says. But when something external diverts our focus, it takes us an average of 25 minutes and 26 seconds to get back to our original task, she has found. (Folks often switch to different projects in between.) And it stresses us out. Research using heart monitors shows that the interval between people’s heartbeats becomes more regular when they’re interrupted, a sign they’re in fight-or-flight mode.
  • This week’s guest on Orion’s The Weighing Machine podcast will be Dirk Hofschire, head of the Fidelity Investment’s Asset Allocation Research Team in Boston.  The conversation with Dirk was a lot of fun and he covered a lot of important ground, including his team’s outlook and their new white paper on what to expect from the massive increase in global debt.  In short, it’s still an argument for staying invested and staying globally diversified.
  •  Awesome picture of the week: Thanksgiving on the beach!

2968-OPS-11/22/2021

The CFA is a globally respected, graduate-level investment credential established in 1962 and awarded by CFA Institute — the largest global association of investment professionals. To learn more about the CFA charter, visit www.cfainstitute.org.

The CMT Program demonstrates mastery of a core body of knowledge of investment risk in portfolio management. The Chartered Market Technician® (CMT) designation marks the highest education within the discipline and is the preeminent designation for practitioners of technical analysis worldwide. To learn more about the CMT, visit https://cmtassociation.org/.

 

About Rusty Vanneman
Rusty Vanneman serves as the Chief Investment Strategist for Orion Advisor Solutions. An industry veteran with more than 30 years of investment experience, Rusty creates relevant market- and platform-related content that supports deeper, more engaging conversations with advisors and investors, educating key internal and external audiences on Orion Portfolio Solutions’ strategies and resources to help deliver favorable investor outcomes, and helps identify new investment offerings to meet growing marketplace demand. Rusty is a host of Orion’s The Weighing Machine podcast and authored the book “Higher Calling: A Guide to Helping Investors Achieve Their Goals.” Rusty has also managed multiple mutual funds and hedge funds during his career and was named one of the Top 10 Portfolio Managers to Watch by Money Management Executive in 2017. Prior to Orion’s acquisition of Brinker Capital in 2020, Rusty was the Chief Investment Officer for Orion Advisor Solutions and prior to that was the President and Chief Investment Officer of CLS Investments. Before joining Orion in 2012, Rusty served as the Chief Investment Officer and Managing Director for a multi-billion-dollar registered investment advisor (Kobren Insight Management) in the greater Boston area. His 11-year tenure at the RIA included a five-year span when the firm was owned by E*TRADE Financial where he also served as the Senior Market Strategist for E*TRADE Capital. Prior, Rusty was a Senior Analyst at Fidelity Management and Research (FMR Co) in Boston. Additional work experience includes Thomson Reuters, General Electric, and as a cattle ranch hand in the Nebraska Sand Hills. Rusty received his Bachelor of Science in Management from Babson College in Wellesley, Massachusetts, where he graduated with high distinction. He holds the Chartered Financial Analyst (CFA®) designation and is a member of the CFA Institute. He is also a Chartered Market Technician® (CMT) and is a member of the Market Technician’s Association (MTA).