July 30, 2021

Little Makes Sense, and That’s Okay

“Know-it-alls are people who appear to know everything 

with the exception of how annoying they are”

    The broad indexes are bouncing around these days and the diversity of the accounts appears to be good strategy, for now. Much of the volatility is coming from the usual sources, such as the economy and corporate earnings results. But it’s also the financial pundits and other know it all’s who are endlessly decrying the financial end of the world as we know it, while at the same time pushing their bullishness with the enthusiasm of a drunken sports fan and the confidence of a narcissist. In my opinion, if the crowd could simply be more interested in delivering an objective and conscientious inquiry in lieu of their snarky pet like narratives, something in the markets might make sense. 

    I bring this up because these days of watching good earnings result in a stock going down is a good reminder that genuine research and analysis is, in my opinion, most important to designing and implementing an investment strategy, but not the only tool. Unfortunately, the pattern of general analysis is to over value company forecasts when good results come out and undervalue the same forecasts when the same results are below expectations. And its expectations that, in my opinion, are best managed with technical analysis, since a good company is easy to find, tracking the products to the consumers’ favor is the challenge that has always ebbed and flowed along with their unpredictable tastes. This, because two months ago the expectations were wrapped around an explosive reopening trade that found investors hyper focused on airline, hotel, and leisure stocks while the tech stocks, tagged as ‘pandemic friendly’, where sent to the penalty box. All, further fueled by the increase in interest rates that suggested a rise in inflation and inviting a click worthy narrative. Flash forward, and the point of view changed. Interest rates declined, for no particular reason, and overbought reopening stocks were sold in favor of oversold tech stocks, and it hasn’t stopped, but it is slowing down. The weakening arguments in favor of higher inflation were tempered by the Fed along with a scatter of economic moderations, and add to the complexity, the current Delta variance of the virus is being sold in all corners. Hence, the diverse balance of cyclical growth, non-cyclical growth with a handful of consumer value companies, such as Yum Brands (YUM), Costco (COST) and the recent inclusion of Este Lauder (EL), have caught the interest of the growing army of investors, Patient, Pindudes and Algochums, to present a reasonable outcome with potential for more opportunities in the next two months.     

    I am still of the opinion that the broad indexes can continue their rise on earnings, but the continuation of results will depend on closure of the aforementioned group of dilemmas and the know-it-alls that serve their narratives. Not a reason to be too optimistic, but definitely not a reason to be pessimistic.

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