December 20, 2021

Uncertainty We Can Do Without


It’s a challenging beginning to the week with the broad markets losing value in the face of uncertainty.  While US Treasury exposure and cash are helping to offset some volatility, the ongoing narrative of rotations to value from growth seems to tell people to sell tech and buy Proctor & Gamble (PG). This is attractive to many who feel income is more important than growth, but since when does tech, as we know it, only produce the products of growth? Is Amazon (AMZN) a technology company, or is it a consumer discretionary company, think buy, buy, buy? Is Apple (AAPL) a technology company or a consumer staples company? Would we be happier defaulting on rent in favor of keeping our cell phones active, think toothpaste and soap? And there is also healthcare technology. The point here is many of the technical innovations of the past thirty years have been neatly integrated into everyday life and it would be pointless to think culture would abandon many of them simply because they are only technology companies in name. Second is seasonal selling, Required Minimum Distributions for IRAs, and other retirement plans, rebalancing of Defined Benefit plans, and lots of insider selling by company executives and board members who see their generous options holdings currently are in the money and set to expire. Add to that the speculative activities of Pindudes and Algochums and there is enough selling to justify the narrative and keep the markets on edge, for now.


Then there is inflation, producer inflation and consumer inflation has shown steady increases this year and concern surrounds the actions that will be taken by the Fed to get ahead of it. But the markets’ reaction to the moves both currently implemented and forecasted, is reflected in ending bond buying (tapering) and raising the federal funds rate three times in 2022. Fed chairperson Powell also restated the position of the board that the current spate of inflation is less to do with traditional supply and demand directly, but the impact thereof coming from supply chain and employment cost disruptions. This is important in that the statement challenges the chatter that sees a repeat of inflation in the 1980’s. There is also the growing agreement among corporate economists to reduce expectation for 2022 GDP due to the above issues. This is worth noting because if the economy slows down as Goldman Sachs (GS) projects, down to 2.2%, it is resulting from either a stall in employment growth, or supply chains resuming normal deliver and return procedures. Both would directly cool some existing inflation. The market’s overall reaction that day last week when the Fed gave its speech was amply positive, why? Because when it comes to inflation, the fed gave the market what it wanted. 

External Events

Which brings us back to the uncertainty that is pressuring the stock market. This is not, in my opinion, a reason to be concerned over how, but concerned as to why there is uncertainty. First is the concern regarding the recent rise in covid infections stemming from the new omicron variant. The concerns over the effectiveness of the vaccine came first, followed by school closings, mask requirements, steps leading to potential global shutdowns, vaccine mandates, and all of the demands feeding the narrative aimed at keeping everyone cornered and concerned, without a reason why. Vaccine effectiveness has showed positive results in lowering the overall levels of deaths due to covid. The UK government initiated lockdown measures before even one death was recorded seven days ago. US cities are ramping up mandates warning of school closings, mask mandates and possibly even cancelling year end events. Who is to say the politicians are not doing the right thing? I’m not in full agreement, but the stock market is, and only an outcome that invalidates the claims of imminent danger presented by the current narrative, will placate current efforts to normalize and all that comes with it.


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