[Market Madness] Edition 0142
Back to (Normal) Business
What’s new
Administrative topics and an introduction
Well folks, it seems to me that, for the most part, markets have set aside the Archegos blow up and went back into business as usual. Maybe investors won’t let sensational news ruin their order flow in Q2 2021. Stocks rallied this week, continuing to add to all-time highs. Economic data comes in mixed this week, (with the labor market still acting as a potential sore spot) but optimism for the future appears to still be with the economists and consumers alike.
Let’s get into some stories.
P.S. As a heads up, no edition next weekend, but I’ll be back April 25!
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: +1.93%
S&P 500: +2.69%
NASDAQ: +3.08%
Asia and Europe 5 Day Performance
Nikkei 225: -0.29%
Hang Seng: +0.42%
FTSE 100: +3.01%
DAX: +1.50%
Rates, Spot Prices, and ‘Good to Knows’
Market Madness Portfolio: +2.39%
CBOE Volatility Index (VIX): 16.69
US 10 YR: 1.660%
Crude OIL: $59.34
Spot Gold: $1,744.20
TEDRATE: 0.18
LIBOR (3 month): 0.18775%
U.S. Dollar Index: 92.182
EUR/USD: $1.19008
Pound/USD: $1.3706
USD/JPY: 109.655 JPY
USD/CNY: 6.5522 CNY
Weekly update
An article by Christopher
Financial markets
Markets rallied this week, even tech! Investors appear to be continuing to sort out the WFH tech ‘growth’ trade mixed with the reflation ‘value’ trade. It appears that instead of battling one versus the other, both trades can be in rotation, working to propel overarching market levels higher; that is some nice market-breadth!
There are, as always, the folks who continue to warn about the runaway markets as compared to the economy. We will get into the economics here in a bit, but in some respects the worries can be warranted. The economy is full of mixed signals due to a whole host of different circumstances. From a financial lens, we’re seeing perceived risk cool off to new lows, seen before the pandemic. The VIX closed the week at 16.69, which is a relative local low. The VIX can be looked at like insurance, the VIX rises when investors are pessimistic about the future and falls when investors are optimistic about the future.
One other thing that some investors are paying attention to is the level of borrowing taking place to finance investments. As the rally has continued forward, we’ve seen more investors (individuals and firms) borrowing against their portfolios, i.e. acquiring leverage.
“As of late February, investors had borrowed a record $814 billion against their portfolios, according to data from the Financial Industry Regulatory Authority, Wall Street’s self-regulatory arm. That was up 49% from one year earlier, the fastest annual increase since 2007, during the frothy period before the 2008 financial crisis. Before that, the last time investor borrowings had grown so rapidly was during the dot-com bubble in 1999.” (excerpted from WSJ article)
This is not currently a factor that experts are saying has caused the rally, but some are keeping an eye on it to ensure that this is not going to be some kind of bubble or tail risk that would bring about a market correction.
Bonus Reads:
A look back at the wildest quarter for dealmaking in memory - Financial Times
GameStop and Bitcoin Renewed a Push to Digitize the Stock Market - WSJ
Why Copper is Crushing Gold - The Untitled Chart Show
Economic data and stimulus
In the economy, there is a lot to cover this week. First, looking back on Q1, we had some dollar weakness. This is not expected to be a long-term concern as the recovery pace is set to pick up steam moving into Q2 and beyond. This seems to be corroborated by economists who are predicting an upcoming (potentially long lasting) boom period, as well as JPMorgan CEO, Jamie Dimon, who sees a ‘goldilocks opportunity’ for the U.S. economy. You can read his entire shareholder letter here, but I am warning you it’s a long (albeit good) 67-page read. Together, these two forces see a true opportunity for the economy to boom well into 2023.
A big proponent of this was the major (positive) surprise print on consumer confidence we got this week. March’s consumer confidence report printed at the highest level since before the pandemic, signaling that consumers are highly optimistic about the economy moving forward. The street was looking for a print of 96, but they got a print of 109.7, wow! Another data point propelling recovery forward were the record high ISM Manufacturing and ISM Services prints the last two weeks, signaling output is ramping up to meet demand. The only thing still standing in the way of increased output remains the global supply chain constrictions, including the computer chip shortage.
The last, yet still most troublesome, piece of the puzzle remains the labor market. We’re seeing jobless claims hover around pandemic-lows, albeit still high week over week. Job postings are recorded to be increasing, yet there seems to be some general friction between enhanced unemployment benefits and returning to work; the incentives don’t quite align yet to convince people that returning to work is better long term when their short-term benefits continue to get extended. Soon, the enhancements will come to an end, as the economic music comes to a full crescendo, and then those folks will have to turn back to the labor market.
Elsewhere, Joey B. is holding firm on infrastructure, and Treasury Secretary Yellen and the G20 countries are taking up a potential global minimum tax rate targeted to launch mid-2021.
Bonus Reads:
Fed Minutes Show Expectations for Stronger Economic Recovery - WSJ
The Madness of King Dollar – Heisenberg Report
Market value of top metals, mining companies decreases 1.1% in March – S&P Global Market Intelligence
Quick Takes
To fill in the gaps
Amazon wins votes necessary to block union vote in Alabama. (via CNBC)
Pandemic woes leading to social woes. (via WSJ)
P&G worked with China Trade Group to sidestep Apple privacy rules. (via WSJ)
GM halts production at several US plants due to chip shortage. (via WSJ)
Cathie wood might be on the downfall with her new ETF. (via WSJ)
The Ever Given still is not going anywhere despite recent freedom. (via WSJ)
Morgan Stanley dumps $5 billion of Archegos’ stocks night before street-wide fire sale. (via CNBC)
A fertilizer billionaire in Mexico. (via WSJ)
‘Finding a job should be easier’ - Indeed CEO. (via WSJ)
Credit Suisse reports $4.7 billion hit in Archegos fallout and ignored early warnings. (via WSJ and via WSJ)
Google dumps Oracle for SAP. (via CNBC)
Coinbase ‘independent’ directors show close company ties. (via WSJ)
GameStop looks to issue more shares in secondary offering. (via FT)
Aramco looking to sell $10 billion pipeline stake. (via WSJ)
Goldman Sachs bought £75 million of Deliveroo stock following IPO to prop up stock price. (via FT)
Turning to Hydrogen for power is “Not Bonkers.” (via FT and S&P Global Intelligence)
SoftBank puts $500 million behind mortgage startup ‘Better.’ (via WSJ)
Leave it to Wall Street to find new ways to finance unprofitable tech companies. (via WSJ)
U.S. regulators turn eye to SPACs and their ‘rosy’ projections. (via FT)
General Banter
What’s on the minds of our editors and writers
No real banter this week, just some interesting articles that are good primers for what is coming down the economic/financial pipeline:
Reader’s Corner
A place for suggestions for readers like you
My good friend Michael published his first investment report on Roblox last week, and I found it to be a really informative read. Grab it here: Roblox Corp (RBLX) Analysis — The Irreverent Investor
The reader might also enjoy this nice VICE documentary on the 2008 Financial Crisis: Panic: The Untold Story of the 2008 Financial Crisis (nothing about it is really ‘untold’ but that is okay)
What I’m Reading:
Connect: Building Exceptional Relationships with Family, Friends, and Colleagues [for education]
Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street [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.
lol oh hey a shoutout! Thanks man!