Despite the nasty rhetoric and the confluence of some very weird events (even for these times), investors should be thankful for their bounty this year. U.S. stocks as measured by the performance of the Standard and Poor’s (S&P) 500 Index are +25% before dividends through November 18 and a startling +110% from the COVID low in March 2020.
September performance for the S&P 500 (-4.7%), was the worst month since March 2020. The question now is, will it continue or was that enough? All major asset classes fell in September, except cash.
Although September brought an early Halloween scare to the market with the S&P 500 -5% for the month, stocks still were flat for the quarter and rose +15% (excluding dividends) for the first nine months of 2021. Not too shabby particularly since we had to shake off the collapse of Evergrande, China’s largest residential real estate developer.
When people talk about market risk, they often reference Nassim Taleb’s book “The Black Swan.” A “black swan” event is one that is extremely rare, hard to measure but exerts a materially negative impact on capital markets. By contrast, Michele Wucker coined the term “Gray Rhino” to describe obvious risks that are being ignored.
The market is efficient. That is, available information is immediately baked into securities prices. When I was a young analyst, that was not necessarily the case. I knew stuff that you did not, and that was not fair. You would think that regulators closed that loophole.
I have been worrying about inflation, particularly wage inflation, as our economy reopens. Inflation can crush the valuations of growth stocks and other “long duration” assets. However, the spreading of COVID’s delta variant and recent indications of a quicker economic slowdown.
Inflation readings were scary in April and May with the Consumer Price Index (CPI) up a respective 4.2% and 5.0%. Why should you care? If you think that inflation is transitory then you should not worry. That is our central bank’s — the Federal Reserve Board’s — official stance.
As I listen to and read about the fears of above-average inflation and rising interest rates I also hear and read about a labor shortage and a shortage of finished product inventory.
Portfolio manager Paul Meeks, CFA, CAIA weighs in on Boeing stock and why Boeing’s wounds are self inflicted. Read here for full details.
In April 1980, which was at the end of President Jimmy Carter’s single (no surprise) term in office, inflation in the US peaked at 14.6%. Inflation is commonly measured by the Consumer Price Index (CPI). Think of it as the price of a basket of goods that most of us buy frequently. About a year and a half later, specifically in September 1981, President Ronald Reagan was still trying to tame inflation; and interest rates were sky high in response.