What’s new
Administrative topics and an introduction
Well folks, direct payments are starting to be distributed to eligible Americans; it’s like an early/late birthday present! As always, there is a lot to chat about, so I won’t waste any of your time.
Let’s get into some stories.
Did you miss the last edition? No worries! Get it right here and catch up on the madness.
Fundamentals
Where did the markets end last week?
U.S. Indices 5 Day Performance
Dow Jones: +1.22%
S&P 500: -0.57%
NASDAQ: -2.09%
Asia and Europe 5 Day Performance
Nikkei 225: +3.44%
Hang Seng: +0.08%
FTSE 100: +0.73%
DAX: +1.41%
Rates, Spot Prices, and ‘Good to Knows’
Market Madness Portfolio: -1.48%
CBOE Volatility Index (VIX): 21.00
US 10 YR: 1.726%
Crude OIL: $61.44
Spot Gold: $1,741.70
TEDRATE: 0.15
LIBOR (3 month): 0.18663%
U.S. Dollar Index: 91.74
EUR/USD: $1.1904
Pound/USD: $1.3868
USD/JPY: 108.901 JPY
USD/CNY: 6.507 CNY
Weekly update
An article by Christopher
Financial markets
The U.S. indices had a mixed week. The same drama from last week stuck around to haunt us. Interest rates, namely the US 10YR yield continued to rise as investors ditched bonds. This rise, in turn, continued to pummel tech shares, dragging down the tech-dominant NASDAQ and the tech-component of the S&P 500. Volatility has cooled off, however, in comparison to some of the wilder weeks in months past. The outlier of the week was the Dow Jones Industrial Average, posting above 33,000 for the first time. The jump to 33K came just 5 trading days after first passing 32K, a record itself. The picture of the week might have been gloomier for stocks had it not been for Jerome Powell and the Fed to hold steady on their rate outlook (as we discuss below). All things being considered, stocks were much quieter this week than they were a year ago. And to top that off, we’re still hovering at or posting new all-time highs across the indices, a true miracle if you ask me (as markets tend to hold tighter onto bad memories than good ones).
In commodities, oil sold off a bit in response to the brief pause on the AZ vaccine. It remains over $60/barrel, but has retreated from higher prices earlier in the week. Additional news from the International Energy Agency suggests that global demand for oil has peaked, and will not return to pre-pandemic levels. This will not happen over night, but there will be a lot of longer term considerations over crude oil demand.
The Paris-based energy watchdog, in its closely followed five-year forecast, said an accelerating global shift toward electric vehicles, along with increasing fuel efficiency among gasoline-powered fleets, will more than outweigh demand growth from developing countries. (excerpted from WSJ article)
Elsewhere, (wealthy) clients of Morgan Stanley are among the first big banking clients to be given access to bitcoin funds. No real surprise here, everyone and their dog are trying to get access to the red-hot crypto market. Many big financial institutions are racing to be the first to launch a crypto-backed ETF as the SEC remains undecided about the push. As many of you know, I am not the biggest supporter of this industry, but I am trying to remain optimistic about learning more and, at the very least, provide developments in the space that relate back to the core finance of this newsletter. I do not think that it is going away any time soon, especially as so many onlookers are mad that they’ve been missing the returns.
Bonus Reads:
Dalio Tells ‘Crazy’ Story, Is Bullish ‘Stuff,’ Bearish ‘Stupid,’ Short Cash – Heisenberg Report
Tail Hedging: Safe Ports in a Market Crash? | Protect Your Plunder - Pirates of Finance, via YouTube
Economic data and stimulus
All the spotlights were on Jerome Powell and the outcome of this week’s FOMC meeting. Not surprisingly (to me anyway), the Fed maintained its previous outlook, expecting to hold rates near zero through 2023.
Central bankers voted unanimously to maintain overnight interest rates near zero, where they have been set for the past year, and to continue purchasing at least $120 billion of Treasury bonds and mortgage-backed securities monthly. Mr. Powell said the measures “will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete.” (excerpted from WSJ article)
Where there was a little surprise (in a good way) was the central bank’s outlook on GDP, unemployment, and inflation in the years to come. GDP is now expected to increase 6.5% in 2021 and then taper down in the years following; unemployment is now expected to fall to 4.5% (from current 6.5% level), and inflation is expected to reach 2.2% in 2021, and fluctuate above/below 2% in the next few years, all while maintaining the long-run inflation target of 2%.
With no rate hikes in sights, stocks generally seemed to take well to that news, despite tech being hit by the continued rise in the US treasuries (investors are selling out of bonds, causing the yields to rise).
Elsewhere, weekly new jobless claims took an unexpected jump up as compared to the previous week, but not by much (higher by about 30,000). About half of the new claims from last week were in Texas alone, signaling the winter storm recovery is off to a slow pace. Despite the jump, most economists believe the economy is still charting on the right path in the bigger picture; there will always be some small bumps in the road.
Speaking of Texas, the winter storm debacle there a few weeks back is still causing global supply chains to be all twisted up (as if the pandemic alone was not enough to cripple global supply chains). Many international companies ranging from automotive to electronics/telecommunications have reported intermediate part setbacks related to the storm in Texas as well as general pandemic woes. I’ve been seeing articles like this pop up now and again, and the message is still true: global supply chains are not robust (or antifragile if you’re feeling more sophisticated) in the wake of global shutdowns.
Now, we live in a world where many of the input components to a finished good are sourced from varied corners of the globe, put together in an entirely different place from all those parts and shipped to consumers in all other parts of the world. The system goes a bit bust when countries start shutting everything down to starve off a deadly disease. And truthfully, keeping people safe and alive is the better of the two choices in those circumstances. For the rest of the story, the large multinationals are going to have to revisit the drawing board to evaluate some scenarios in which they can improve on their supply chain. In most endings to that story, the solution is to remove people and insert automated machines, but that is still not yet the answer either. People still need to have a source of income and the service-side of the economy does not nearly have enough job openings to satisfy all those displaced workers. Just food for thought, but this is going to be a frequently visited discussion among executives in the coming years.
Finally, in connection with the conversation about supply chains (at least in part) was the sour retail sales print for February. Retail sales fell 3% compared to January, in part due to the inclement weather down south and its related supply chain challenges. A retail bounce back, in conjunction with the broader economic recovery picture, is poised for later in the spring and into the summer months.
Bonus Reads:
What Wall Street Thinks Of Jerome Powell Now – Heisenberg Report
Treasury Yields Extend Surge - Wall Street Journal
Quick Takes
To fill in the gaps
Looking back on the March 2020 selloff, what have we learned? (via CNBC)
China to restrict state and military personnel from using Tesla vehicles. (via WSJ)
Justice Department looking into Visa over Debit-Card practices. (via WSJ)
How Israel’s vaccine rollout was so successful. (via WSJ)
Short sellers take aim at SPACs. (via Investopedia)
Microsoft’s Exchange breach. (via CBS News)
Retailers look to grab retail space while the rent is cheap. (via CNBC)
A follow-on to the ongoing Greensill collapse. (via WSJ)
Shareholders vote down Starbucks’ proposed executive compensation plan. (via CNBC)
Tax deadline moved from May 15 to April 17. (via CNBC)
Carl Icahn grabs two board seats as FirstEnergy reaches deal to but past bad behavior beneath them. (via WSJ)
Junior bankers cannot hold up against the wave of SPAC-related workload. (via CNBC)
NFTs and ‘real art.’ (via WSJ)
AstraZeneca faces some hurdles with potential vaccine worries. (via WSJ)
General Banter
What’s on the minds of our editors and writers
This edition is free of additional banter.
Reader’s Corner
A place for suggestions for readers like you
A good perspective reminder:
What I’m Reading:
Options, Futures, and Other Derivates (10th edition) [for education]
Vanishing Games by Roger Hobbs [for interest]
Well done. You’ve made it through the madness. I’ve worked hard to ensure that you leave this page having learned something, and I hope that it benefits you in your daily adventure. Thank you again for checking in.
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