April 22, 2021

Calming Down

 “I’m not looking to be dazzled, I’m looking to be impressed”

The market has spent the first two days of this week in a correction phase that was much needed. Then It bounced back yesterday, for no particular reason, and today it moved lower. This is welcome activity for those of us with the patience to move along, focus on managing the opportunities and other management strategies that corrective markets provide for us. So, how come the media narratives remain married to negative outlooks, Pindude humiliations and everything else that goes along with something that I’ve written about for months, little in this market makes sense. And the reason is we live in a world where being dazzled is more important than being impressed.

    Much of the recent economic data that has come out has been mixed, mostly a result of first quarter inclement weather and the recent sharp increase in interest rates. And as we enter the current quarter the expected double digit rebound in Housing and Retail Sales was accompanied by increases in both Consumer and Producer Inflation. Not much more to point at, but inflation is less in the overall public narrative, even those it should be a real concern. The markets have also shown a resilience to inflation fears and that’s not unusual either. Going forward the Manufacturing and Non-Manufacturing Indexes came in at 63.7 and 64.7 respectively, both comfortably over 50, signaling an expansion. All this points to continued growth that will include consumer activity, which will make its way to markets as more and more people are vaccinated and the correction begins to subside.

    To recap what’s driving the markets lower this week, first the technical indicators have been overbought for nearly a month, and although that is only a probability with no specific reason attached, the ongoing disruptions coming from Washington regarding tax increases affecting both corporate rates and capital gains rates is the first culprit. The latter is especially troubling although it is being sold as an exclusive punishment on the those earning over one million dollars. Trouble is those are many of the loftier owners of stock and coupled with the current technical condition of the broad indexes, selling makes some sense. Our current focus on the selling is to isolate opportunities that both add to existing, holdings and bring new names to the portfolios. But also, to make changes to the overall allocation, such as a more balanced exposure to domestic and foreign economies.  For now, the cash is available for both efforts and new cash can be raised easily if necessary. Until then, patience is still a virtue.

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