Markets Fret Over Fear of Change in Monetary Policy.
October 5, 2021
by Mitchell Anthony
The relatively steady rise in equity prices that we experienced the last 1 ½ years has shown some signs of stalling over the last month. The S&P 500’s recent peak was on or about August 31. It declined about 4% in the first week of September and then quickly recovered back to its August 31 high by September 22. However, commentary from the feds meeting the third week of September caused fear and investors pushed the market down again to where the S&P 500 is now about 6% below the August 31 high. We saw a similar correction like this in March of this year as well as November of last year. When investors fear the economic cycle is ending they sell stocks and they tend to sell growth stocks first because of their high valuations. As a result technology has underperformed over the last month and value areas like energy, materials, and financials have done better but still have declined over 2%.
Steady economic data combined with accommodative monetary policy got the markets right back on course during these previous corrections. Will this correction have the same outcome? We believe so, however we are carefully watching the inflationary environment as well as the dynamics going on in housing for confirmation of our thesis that this market is being driven by Fed liquidity and expectations for modest earnings growth. We believe the Fed’s liquidity pump will remain on for several more years, combined with a strong consumption theme of housing and business and consumer services. We believe the US economy will ebb and flow with modest to moderate growth. Asset valuations will remain very high as rates stay near Zero.Read more
Markets Moving Higher on Expectations for Vaccine Success
By: Mitchell Anthony
November 25, 2020
Is the Covid Bounce Sustainable?
The distressed areas of the US equity market have rallied hard over the last few weeks pushing the Dow Jones industrial average over 30,000 for the first time. This occurred after three vaccine makers announced that they had achieved over 90% efficacy with their vaccines. This really exciting news caused investors to scoop up airline stocks, REITs, hotels, casinos, energy, and automakers. Since November 10th the equity market leadership has been dominated by highly distressed cyclicals and industrial names and other so-called re-open names in the equity market. We also saw strength in Biden industries including environmental stocks and semi-conductors companies that are poised to benefit from new policies that Biden plans to enact once in office. At the same time we have seen the stay at home names pause after a steady and substantial six month rally. The FAANG has been flat for the last three months while at the same time these distressed value names have advanced 5 to 10% or more. Is this three week move in these distressed areas of the market sustainable? How far will distressed areas of the equity market go on the come of substantial vaccine success? These are questions that we have been asking ourselves along with the rest of the Wall Street strategists who have pondered on the change of leadership that has just occurred over the last few weeks. Read more
By Mitchell Anthony
September 23, 2020
The Markets Recent Volatility
The equity markets have been going through a bit of a correction over the last two weeks. This is the first correction since the February-March 2020 correction that occurred due to the coronavirus outbreak and the shutdown of the global economy. After this correction the markets ran wild to the upside after the central bank and the US Congress essentially stated that they would monetize their way out of this economic problem. Valuations soared in industries and names that were highly leveraged to the stay at home environment that ensued and continues today. Cyclical names have also rebounded but the performance has been far different as these cyclical names are not leveraging the current environment but in fact impacted by the current environment. The rally in both has now paused as investors assess the likelihood of a second stimulus package from the US Congress. The stimulus package has stalled because of a few areas within the Democratic demands that the Republicans have not been able to stomach. Most notably bailouts for states and local governments that acted irresponsibly for many many years. The Republicans just want less stimulus for consumers and small businesses than the Democrats want. The Republicans are hung up on principle for the time being but likely will fold when they realize that maintaining control of the presidency and the Senate are more important than blocking stimulus now that will just happen later if they lose control. Investors obviously worry and as a result stocks have corrected 10% or more from their highs recently. This correction will likely end soon if it hasn’t already as the economy continues to stay on a path of recovery and interest rates remain at zero and the fact is there is nowhere else to put your money besides risk oriented investment areas like stocks or real estate.Read more
By Mitchell Anthony
September 1, 2020
The Feds New Posture
Chairman Powell spoke at the Jackson Hole Economic Pow Wow last week about the Fed’s role in controlling inflation and made it clear to investors and financial markets that the Fed is prepared to let inflation rise over the intermediate term in order to achieve a full and complete economic recovery. The Fed believes inflation has been down and out for too long and in fact now recognizes that it acted in error in 2017 by raising rates aggressively when inflation began to ebb higher. The Fed’s actions slowed the economy then and now Covid 19 has slowed the economy even further causing historically low levels of inflation that the Fed is unhappy with currently. The Fed believes higher levels of inflation are consistent with a strong economy. The Fed believes that the last few years of ultra-low inflation must be accounted for when assessing inflation that is on the horizon. The Fed has been to vigilant in fighting inflation and so have other central banks around the world and as a result the globe has been mirrored in a period of ultra-slow growth with deflation in some areas. Just how serious is the Fed about letting inflation rise and to what extent will the Fed let inflation rise? This statement is a bit unusual from the central bank chairman we have grown to know. Comments about letting inflation rise would normally spark a rally in gold and other inflation hedges, however gold did not react significantly to the Fed statements nor did other commodity assets. Investors are becoming astute at reading the Fed and this time recognized that the Fed is not acting in a reckless manner and really just see him more aware of the need to allow this economy to progress. Stocks however did react and have pushed higher with comfort of a continuation of the current accommodative rate environment.Read more
The steady rally in equity markets that we have enjoyed for over 12 months may have come to an end. Our current rally began in January 2019 after our last correction that occurred in October 2018. The S&P 500 has declined approximately 11% from its all-time high achieved just a few weeks ago. Volatility has risen to the highest level in several years over the last two weeks.
Has the rally just paused or is this the beginning of a more significant correction as investors discount the likelihood of the growth phase of this economic cycle ending because of the impact of the coronavirus. We highly suspect that this is not the case! However, we cannot ignore the unknowns that exist with this highly infectious virus that has not proven to be very deadly, but is a threat to people who already have respiratory distress. The last time we had a coronavirus in the globe was in 2003 with SARS. It began in China as well and mutated from animals very similar to this virus. The SARS virus caused little if any damage to the global economy or the American economy and burned itself out within six months. SARS had a much higher death rate and was also very infectious but never spread to a vast part of the globe. We have had other viruses over the years that were deadly but have never shut down or changed course of the global economy. SARS, MERS, Swine Flu, the list goes on…Hopefully this will just be another one that is added to the list of viruses that burned himself out before they ever damaged the US economy.Read more
Markets Fall as Investor’s Hedge the Risks On the Horizon for the Economy.
The equity markets in America have turned downward as result of some storm clouds that have appeared on the horizon that threaten to stall or slow the growth of our economy. Over the last few weeks the S&P 500 has fallen 10% from its September 30 peak and is now up just 1% for the year. All of MACM's growth strategies have fallen from their September 30th peaks. MACM's dynamic growth portfolio has declined 13% but is still up 8% year to date. AAI has given back 10% and is now up 5% year to date. Diversified equity has given up 12% but is still up 11% year to date. While we are unhappy that we have given back almost everything gained in the third quarter we believe that higher prices remain on the horizon for equities and the cycle is not going to end here!Read more
