January 7, 2021

Yes, It Happened, What Now for the Markets

One characteristic of this week’s prices action is the sharp declines being met with sharp rises of the broad indexes. Rather than the customary indications of sector changes, growth to value, secular to cyclical, instead the price action seems to focus today, what went down yesterday, Apple (AAPL), Nvidia (NVDA), should be bought today, and visa versa. This action is making research and analysis of global economic trends that much more important as one shouldn’t lose site of the fundamentals of a company. For companies, are sales steady, free cash available and gross margins increasing. Second is the technical condition of the broad indexes, which are high, but not yet overbought. This gives reason why the indexes are showing vigor while the rest of the country is in political chaos. Could something change the scenario, sure, we got a pandemic without any notice. But that’s why keeping cash outright or monetized through a blended ETF (SCHB) makes the job of watching and looking for opportunity that much easier.

Economic data is showing ISM Manufacturing moving above 60 (over 50 is a sign of expansion), jobless claims also dropped again. And with growing optimism for a fast route to the $2,000 stimulus check millions are waiting for, tomorrows unemployment data could be less exciting than expected, but not perhaps taken as a trend. And with national services showing increasing activity, improving the overall outlook, that there is expansion occurring should continue to have a positive effect on consumer data and non-manufacturing data to be release later in the month. And as greater attention to the need to speed up protocols for getting the public vaccinated, that will also improve overall optimism for the continued growth in the economy and likely the markets.

So, what’s driving the volatility as well? Why are so many irritated by big companies, just for being big? And what is the problem for aging analysts angry that companies such as Amazon (AMZN) and Salesforce (CRM), both which we own, refuse to give away their profits to shareholders when all they are doing is reinvesting their profits in the company, the product, the employees and to the surrounding community. What’s wrong with that? The struggle that faces the country’s political actors is as chaotic as anything else and protests are touching everyone emotionally from fear to humility. This leaving, in my opinion, the challenges to managing markets not that far removed from the challenges in life.

I prefer to be more pragmatic in the decisions I make, leaving speculative beliefs on the table. The external events that are central to daily dialogue are not helpful in providing the clear decisions that need to be made. So however problematic we try to project the violent events of the past few days toward irredeemable outcomes I’m counting on the potential for pragmatism to begin creeping into Washington. Still noisy, but the chambers have challenges too, majorities in both, but not controlling majorities, and that will require more attention to genuine bipartisan legislation. That could include stimulus aid, infrastructure capital allocation and, yes even the clear opening of renewables to the conversation as a genuine space to capitalize on, politically and economically. The last point is the markets are neither impervious to the current events nor blind to them and that’s my focus as we start the new year.


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