Market Commentary for the week of December 20, 2021

 Fin Ed

How to make sense of last week’s turbulent confluence of politics, Covid, inflation news, and the Federal Reserve?  Finding equilibrium in a world in flux is vexing, at best.  Perhaps we need to amplify the premium we place upon managing expectations amongst all the confusion.

Tradition tells us that the economy and the financial markets sometimes diverge from parallel paths. How else to explain a stock market surge, while a large portion of the world’s economy is stuck in wage, job, and health uncertainty?  First, this is not a zero sum game.  Gains in wealth do not insure parity across the board.  The last decade was testament to the notion that wealth does not always “trickle down” entirely to others.  Look, its not profound to say that we exist not just to inflate our own personal portfolio, but to help others succeed, too.  What a cruel world if the rich belittled the poor or ignored their plight.

So how do the agencies of government and finance accommodate the wealth gap?  Sometimes by passing laws or working the levers of power to even the playing field.  The Federal Reserve’s announcements last week are an attempt to quell runaway inflation while still maintaining firm control over the money supply and also propelling the engine of public/private partnership to generate business and profitability.  In my investment discipline, for example, we acknowledge the quantitative irregularities of the real world and use those dynamics to create asset allocation models that reflect both financial and psychological probabilities of trend continuance or dissipation.  Too many are asking for “fairness” where fairness just doesn’t exist.  S&P and Dow Jones averages are at record levels, but not all sectors are creating wealth equally.

There needs to be a reassessment periodically that evaluates performance and intent from our institutions.  People are more secure today than ever before, but many don’t feel so.  “Every man for himself”  is not a creed that leads to good government nor good consumerism.  So how to tackle the news from last week that inflation is rising, stocks are plateauing, and Covid is multiplying...?

Logarithms or intuition?

Despite the uncertainty, opportunity abounds in the financial markets.  In fact, the greatest potential exists when a void is created.  You just have to know how to find it.  Longer term themes do  matter.  They are the essence of creating an investment plan and diminishing the impact of fear and panic when it occurs.  Said another way, ebb and flow…up or down…is the best way, scientifically, to maximize “entry points” and quantitative probability for portfolio growth.

Our current environment of “easy money” (low interest rates) is about to phase out.  Interest rates will rise; commodities prices will rise because of scarcities and higher demand; growth (GDP) will expand as consumers emerge from their psychological cocoon and new initiatives in the capital markets accelerate; employment and wages will grow if/when the Covid virus is contained.  Above all we caution that portfolio allocations must be consistent with risk tolerances and time horizons.  Patience is key.  “Fast money” is fast disaster.

Imagine…..

Investing is not just individual aggrandizement, but rather committing capital to a purpose larger than personal needs only.  The importance of owning and investing in assets is only as strong as the value that accrues to the common good, while still providing comfort to ones’ self, family, health, and community.

Market Commentary for the week of December 6, 2021

Circle the wagons

Two weeks ago, the economic conversation centered around a successful global recovery (from the pandemic in 2020 and from efforts made since the 2008 Great Recession), a monetary and fiscal response to nascent inflation pressures, and flux in the job markets.  Today, the entire narrative has been upended by concern over a new Covid variant, Omicron, and its potential to disrupt the existing forward trends.  Whereas the emphases had been upon what was going right, the stock markets were more concerned in the past 5 days about bailing out before something went drastically wrong.

It’s a fact that we live in a 24 hour news cycle world.  The internet is such that if someone in South Africa “sneezes” the panic it creates might be felt worldwide.  Was the selloff reaction in the financial markets appropriate and proportionate?  Perhaps not…that is why we must follow the science and wait for those answers.  However, it has now become commonplace for markets to react more like a casino than an investment community, dealing the kind of instant pain, or gratification, with which this era has unfortunately become accustomed.

It has to be accepted that we now live in a Covid dominated world until or unless the disease is eradicated completely (not likely) or controlled in a way that it becomes less of a menace to the workplace, one’s health, or one’s psyche.

Our concern though is that the investment world conflates headlines with market trends.  In a cyclical world, what sometimes is up is another time down, and what today might be winning could be a “loser” at some point in the future.  You see, the whole world…especially the stock market…is constantly in a state of flux, moving parabolically along the course of its trajectories.  When retail capitulates, for example, the drug stocks accelerate.  When the economy slows, oil and gas recede while defensive stocks advance.  These transitions occur over time…and time is the most critical element to any portfolio decision and allocation.  In the realm of quantitative science, 24 hours is a grain of sand on a larger beach.

Look beyond

The problem with micro-managing almost any trend is that the analytics are rendered useless without an amplitude against which to measure cycle advance, angle of ascent/descent, or magnitude.  One cannot determine the progress of a patient without a chart indicating a starting point and an expected outcome in the future.  Only time can provide that perspective.

Investors are in such a hurry to cash in on the big score that they lose their perspective, and confidence, in a matter of minutes based solely upon what they hear in a news headline at the top of each hour.  However, in a Covid world, we must learn to adapt, without panic and confusion, to a changing landscape…in our homelife, workplace, and society.  And I believe we will learn to do just that.

As energy resources dissipate we will find alternative energy to fuel our businesses; we will discover new medicines to combat diseases; we will close the wealth gap inequalities which exacerbate the negative consequences of economic disruptions; we will invest in infrastructure to diminish the impact of supply chain bottlenecks; and we will accelerate the progress that we were making in the global economy pre-pandemic.

But mostly, we must step back from assessing everything in the context of our 401-k valuations each market close and learn to elongate our perception arc more closely to approximate the real value of investing in protracted strategies and sectors that impact the world for the long run.  Overall, our market optimism remains intact despite the overwhelming uncertainty that gripped the markets last week.  As is always the case when selloffs occur, wreckage lays strewn all around.  But this is absolutely the time to be focused on buying the secular long-term trends in energy, agriculture, healthcare, infrastructure, and technology.