|Index/Asset||October 2021||November 2021|| |
|Dow Jones||+4.35%||-5.91%|| |
|S&P 500||+5.70%||-3.17%|| |
|Russell 2000||+2.48%||-10.68%|| |
|Silver ||+6.20%||-5.27%|| |
|10Yr Treasury Jan 2021-.917|
October 30- 1.566%
|+9.7 Bp||-19.8 Bp|| |
|U.S. Dollar Index||+.10%||+2.30%|| |
U.S Economic & Financial Markets Outlook-Inflation Readings and Omicron Variant Offset as Powell Prioritizes Employment! (Return figures in this section come from the November 30, 201 editions of the Wall St. Journal. Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
In November, the Dow Jones Industrial Average fell 5.91%, the S&P 500 lost 3.17%, and the Nasdaq dropped 3.53%. On balance, 2021 is a year which showed the resilience of the United States economy. Even with challenges like different Covid strains, industry adapts and transforms to find ways of growing profits. The reality of capitalism is only the best businesses endure the cruel fate of competition. In the existing climate, every major industry is faced with a rapidly changing landscape.
In automotive and every part of transportation, electrification forces long time incumbents to evaluate their positioning versus emerging entities. Markets are always forward looking and valuing technology-based entrants well more than their legacy peers. In the consumer area, traditional packaged goods giants are forced to contend with public preferences quickly moving towards health-based alternatives. Technology is forcing financial services firms to face the prospect of a wide array of threats to lower costs and change habits in every segment of their business: retail and commercial banking, credit cards, mortgages, auto lending, prime brokerage, and wealth management. In telecommunications, 5G and virtual reality, satellite entrants, edge computing, direct to consumer, and the convergence of cable and wireless means the quest for scale sees a much wider array of competitors. Health care is another industry which faces big changes. The emergence of different forms of telemedicine to see and treat patients is significant. Vaccine development for Covid is an example of the compression of drug development times. Mobile based insurance carriers surely will force inefficient operators to adapt.
I would be remiss to neglect cryptocurrencies, decentralized finance, and decentralized autonomous organizations and their potential impact on business. Perhaps no technology group has excited younger generations as much as the crypto area. If the past twenty years are a guide, the next few decades will bring dramatic changes which force investors to think long and hard about every industry’s future.
As far as the existing environment is concerned, stronger inflation numbers and the Omicron variant pose offsetting policy directions for interest rates. Chairman Powell seems to be leaning towards sticking with his aggressive taper plans. However, he will be able to give the standard dictum from economists, “On the one hand, on the other hand.” Stronger inflation is offset by the chance for materially slower economic activity. As a result, the Fed can say it elects to do nothing. In the meantime, the ten-year treasury is at 1.5%, officially inflation is running at 4.0% and oil is at 70 dollars a barrel. As for stocks, this is always an interesting time in the markets: Winners win, losers lose. Plan accordingly.
Global Economic & Financial Markets Outlook-Europe Runs Hot While Across Asia, Inflation Remains Muted! (All country index data provided by countryeconomy.com, November 30, 2021)
Across the globe, different regions face varying rates of growth and inflation. Some of those are related to the approach taken by the large countries managing the major health crisis of Covid. Asian economies have not seen labor market shortages which cause wage inflation. Much of the world’s manufacturing capacity is centered in and around Asia. With more robust demand for goods, the factories require full labor forces. In general, inflation is running much higher in Europe (near 5%) than in Asia. China’s numbers are right at 1.5% and Japan is at 0 (where it has been for a long time).
In terms of equity market performance, the largest gains remain concentrated in Eastern Europe. Precise examples include Bulgaria (+39.03%), Austria (+31.61%). The Czech Republic (+32.14%), Hungary (+22.49%), and Romania (+24.3%). Asia’s performance is muted, with China (+26.14%), Hong Kong (-13.79%), Taiwan (+18.29%), South Korea (-1.20%), and India (+21.47%) providing excellent representation of the diversity of returns.
Looking forward, the Turkish currency situation may provide a foreshadowing of what lies ahead for countries where loose monetary policy remain in effect for too long. For those not paying attention, inflation is running at 20% and a non-independent central bank (lead official just resigned) remains pressured to lower interest rates (to 15%). Since September, the Turkish Lira has lost close to 40% of it’s value. With inflation now not officially transitory, if such a predicament were to take place in developed geographies, well, capital markets would face major stress.
The Art of Contrarian Thinking-When Investors See Nothing but Problems, Remember, All You Need Is One! (YH & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
When you review academic research, stock market corrections occur about once a year, at minimum. A correction is considered a retreat of twenty percent or more. If you are a long-term investor, and most people say they are, then you know these sell offs are going to take place. How do you oversee those moments to profit for the next five, ten, twenty, or thirty years?
During sell offs, the media emphasizes huge losses each day they occur. Today, for example, the Dow Jones Industrial average was down 465 points after losing nine hundred last week. You might consider whether you own any stocks in the major indexes. You also might only look at market results at the end of each week. Another strategy is to consider creating a watch list of five to ten companies you have always wanted to own. If you create a target price where you believe you are getting a tremendous amount of value based on specific criteria, you will know when your chance has arrived. Many investors have achieved tremendous amounts of generational wealth by opportunistically buying great situations at bargain basement prices during large market retreats. You only need one great idea for substantial amounts of wealth to accumulate for your family. Make sure you are ready when the market gives you a shot!
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(Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)