December 2, 2020



Week Ended December 3rd, 2021

·        A more hawkish tone from the Fed, relatively rich fundamental valuations for equities and fewer than expected jobs created during November helped to push both stocks and interest rates lower this past week.  In fact, the Dow Jones Industrial Average notched its fourth consecutive losing week.  That said, despite the recent weakness, the Dow, S&P 500, NASDAQ Composite and U.S. Total Market Index all remain within close proximity to recent record highs set within the past month.

We believe the financial markets will most likely remain choppy over the near term as it will take sometime to determine the communicability as well as the severity of this new strain.  As we stated last week, “prior to drawing any long-lasting conclusions, let’s see how this plays out a bit.  In our opinion, there is seldom, if ever a need to run for the exits.  However, this is also not a time to be a hero.”  If we are correct in our prediction of a choppy market over the near-term, in addition to normal year-end tax lost harvesting, where appropriate, we will begin to tilt client portfolios more toward those sectors and names that we believe have secular growth stories and sustainable pricing power.  That said, as noted continuously, client portfolios will remain diversified, focused on their long-term objectives, and adhere to a barbell driven strategy, accentuating growth over value.

·        If the flattening of the yield curve is any indication, the more hawkish tone from the Fed may be coming at precisely the wrong time as historically it portends a slowing economy.  We define this flattening as the narrowing of the spread between the yield on the 10-year U.S. Treasury Note as compared to the 2-year Note which has moved from 98 basis points (one basis point equals1/100 of a percent) to 70 basis points in just the last two weeks.

·         The reopening of the U.S. economy along with the recovery trade may be put off a bit as a result of Omicron thereby causing the Fed to hesitate tightening monetary policy.  However, this also puts them in a corner as it may result in a continuation of issues pertaining to production, logistics and labor, which increases the potential for stagflation.

·        As noted last week, we would continue to remain clear of the stay at home stocks and the performance by DocuSign on Friday is clear evidence that this remains a prudent strategy.  The price per share of the online document company fell 42.22% to $135.09 from $233.82 one day earlier as the company provided outlook for demand that did not justify prior valuations.

·        Beware of year-end machinations in the stock market as both professional and retail investors alike are realizing losses to offset any previously realized capital gains. This results in heightened volatility, but potential opportunity for some companies.

·        Despite Oil & Natural Gas prices coming down over the past several weeks, the stocks within the industry group are rallying.

·        For several weeks we have noted within this update that “we continue to hope that this white-hot stock market will cool off a bit, lest it overheat.  Again, we would welcome a ‘time correction,’ aka a sideways moving market that allows for a cooling of investor enthusiasm and for company fundamentals to catch up with the price of their stock.”  Perhaps Omicron has provided the conditions for the above.

·        If the balance of power in the labor market continues to favor the employee as opposed to the employer, expect continued growth in wages which we view as positive for the stock market and America as a whole as well as more of a battle surrounding the areas of the environment, social responsibility and governance (ESG).

·        Some of the most well-known names in the industry, specifically Paul Tudor Jones, David Einhorn, and Carl Icahn believe that inflation may be here to stay a bit longer than the Fed has stated they anticipate, in large part due to the large stimulus package as well as the structural issues impacting production, logistics and labor as a result of the pandemic.  We agree to a certain extent and are watching this closely.  However, we will also remind investors that at some point in the not too distant future, the disinflationary impact of technology will again take hold, dampening inflation.

·        It is important to keep in mind that there is quite often a disconnect between current economic activity and the stock market as the latter is a mechanism that discounts economic growth up to twelve months in advance.

·        The Federal Reserve through the U.S. Treasury Department continues to exercise traditional measures in attempting to navigate an economic rebound by pushing dollars/stimulus into the economy.  Will this work?  We believe so.  However, keep in mind that historically recessions have been brought about by a lack of consumer demand.  This past one was different as it was intentionally created in response to the health crisis.  Perhaps there has been too much unnecessary stimulus trying to create demand that was going to be there anyways as the United States emerged from the pandemic. For now, just a thought.

·        The upcoming week is relatively light in regard to economic releases.  However, on Tuesday we will get a read on October Consumer Credit; on Thursday, Initial Claims for Unemployment Benefits and on Friday, November Consumer Price Index(retail inflation) and a preliminary read from the University of Michigan on Consumer Sentiment.


·        The corporate earnings has begun to winddown.  However, some potentially market moving companies are reporting.  They include– Coupa Software, Inc. (COUP), Autozone (AZO), Campbell Soup (CPB), GamestopCorp (GME), RH (RH), Vail Resorts (MTN), CRH Plc (CRH), Chewy, Inc. (CHWY),Hormel Foods (HRL), Oracle (ORCL), Costco Wholesale (COST), Broadcom (AVGO) and Lululemon Athletica (LULU).



o   Investing is about staying within your asset allocation model as the short-term is IMPOSSIBLE to predict whereas the direction of the equity markets over the long haul is VERY PREDICTABLE.  Successful investing requires the ability to harness your inclination to respond by selling during times of market stress.

o   Stock prices do not move in a linear fashion.  If they did they would provide returns similar to that of your bank account rather than their historic annualized 8%-10%.  Short-term moves in both directions are unpredictable.  Did you really think that after a 60% move off the bottom in March, there wouldn’t be a correction?

o   We love the statement within an article written by Mike Santoli for CNBC who observes that it is “always worth recalling Peter Lynch’s line that more money is forgone by people anticipating corrections than is lost in corrections themselves.”

o   From the perspective of the client it is nearly as uncomfortable and for them even “irrational” to sell or rebalance during a bull market as it is to buy during a bear market.

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