Powell Doubles Taper Amount and Growth Sells Off!

Sport as about adapting to the unexpected and being able to modify plans at the last minute. Sport, like all life, is about taking risks.

Roger Bannister

In any competitive sport, the end of the contest is often where the outcome is determined. In football, basketball, and baseball, the last two minutes or the last inning is where champions are decided. It is where the great athletes of the generation become famous: Tom Brady, Michael Jordan, Lebron James, Aaron Rodgers, Mookie Betts, etc. The reason why these individuals are so highly thought of is because they come through when it counts the most. When the play has to be made, they make it. They consistently do it under the highest of pressure. The reason I bring this up is because the end of the year is upon us. Financial markets are going to close the books by establishing a final quote on the value of each asset. In that light, the last few weeks of the year are a little like crunch time in a sporting event.

Companies and their leaders build credibility through performance over time. The outstanding entities deliver repeatedly, not just once, but over many years. Yes, there are the invariable difficulties which take place in the economic environment. Currently, it is the emergence of the omicron variant. Inflation is on the rise and it appears interest rates are changing direction, maybe substantially. Still, many companies continue to churn out billions in profits for their owners. Like the post office delivers through snow, rain, sunshine, and in between, the great enterprises come through for decades. When investors decides they might not be as valuable as they thought, usually for some temporary reason, well, you should know what to do. Most companies don’t fall into the great category, and the reason is consistency. Investors in the public markets are notoriously fickle. They can become very negative in a relative short time frame. When they do, very little is thought to be worthy of owning. Conversely, there are periods where everything is considered the next Apple, Microsoft, or Exxon. Even those companies have periods where they are thought to be losing their edge (Apple under Tim Cook’s first year, Microsoft under Steve Balmer). Now is the time where those that have performed will continue to do so. Entities which have not get sold for tax reasons. When the new year starts, there is a new slate. However, a company’s ability to perform probably doesn’t change much. On the opportunity front, the goal is always to find something which will perform well over the next decade. Often, the end of the year is when you have a good look at plenty of situations which can be beneficial for decades. Choose wisely.

In the markets last week, Fed Chairman Powell did the expected with tapering at double the expected amount. It sets the table for two or three interest rate increases next year. Interestingly, the Bank of England surprised investors by raising rates 25 basis points. Inflation is the reason, and given the dramatic increase in Covid Omicron cases, the move was surprising. The ECB policy has been to be data dependent, but currently there is nothing which indicates it will be raising interest rates any time soon. As we have talked about, the new variant gives the central bankers, politicians at their core, the ability to say what they always fall back to, ‘On the one hand, on the other hand.’ Inflation should mean rising interest rates, but Omicron counterbalances it. Similar to the long held doctor’s creed of do no harm, do nothing is the motto but if there is something to do, do it incrementally and let the investment world know it won’t hurt a bit.

On the earnings front, it was a light week with Adobe, FedEx, and Rivian the headliners. Investors digested Powell’s message by continuing to sell off growth names. When everything is not worth infinity, well, those most closely dependent on zero percent rates are viewed in a different light. Finally, just wanted to let readers know my weekly blog will conclude at year end. After ten plus years of my spelling mistakes and poor grammar, it is time to put it to bed. I will still write a monthly newsletter, and once in a while I may post a blog to share some thoughts. Still, I appreciate all the clients and readers who have put up with my opinions, many of them politically related, and I hope you enjoyed it at some point. Stay safe, lots of soup, fluids, and rest and thanks for reading the blog this week.

Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog,  Investing in securities involves risk and the potential loss of ones principal.  Past performance is no guarantee of future results.  All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one’s overall financial situation.  The fact that Yale Bock has earned the right to use the CFA designation does not mean Y H & C Investments will outperform broad market indexes.

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