One day, it’s all about technology. The next day, back to commodities. And on the third, defensive plays like healthcare shine. Next week, we could see a new player lead the markets higher. The Russell 2000 Index, which is chock full of small cap stocks, has been trading back and forth, but basically going nowhere over the last month. I detected a stirring of upside momentum this week and will be watching that index closely after the Memorial Day weekend for additional follow-through. The small cap universe, (one of my picks to outperform this year) has done “okay” so far…
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Fed puts markets on notice while crypto crashes
It had to happen at some point with economic growth spiking as high as it has, and inflation beginning to creep up. Investors should have expected the Fed to think about a change in policy. This week, we had our first mention of the dreaded “T” word. T is for taper and in the minutes of the Fed’s April FOMC meeting released on Wednesday, the entire financial community jumped on just one phrase: “it might be appropriate at some point” to consider tapering asset purchases if the economy shows “rapid progress.” In other words, the Fed is signaling that they…
Gold regains its mojo
In inflationary environments, investors historically have hedged their bets by buying gold. However, this time around, the precious metal has languished as investors bought alternative investments. But times are changing. The primary alternative to buying gold has been cryptocurrencies. Bitcoin and Ethereum, two of my 2021 buy recommendations (for those with a strong stomach) have enjoyed spectacular gains in 2021. Bitcoin, at one point in May, had gained almost 100%, while Ethereum saw gains of more than 400%. In addition, other commodities held more interest than gold for most investors. In January 2021, I recommended investors focus on some specific…
Inflation fears weigh on investors
Most stocks took it on the chin earlier this week. Technology shares lead the rout, but it didn’t take long before just about everything else followed tech lower. By the end of the week, it was as if nothing had happened. That’s called “chop.” Get used to it. The Consumer Price Index (CPI), which investors use to gauge future inflation, took the lion’s share of the blame for the downdraft in equities. Economists had warned that we should expect a higher monthly reading (0.2%) for April, but the data came in at 0.8%. That computes to a 4.2% price gain…
Stocks hit with possible tax hike
It was a losing week for stocks. Most of the blame can be pinned on a proposal by the Biden Administration to double the capital gains tax on investments. It is not official yet, but investors are counting on an announcement next week. Before you hit the sell button on all those huge capital gains you have accumulated over the last few years, know the facts. Right now, there aren’t any. What we do know is that Joe Biden ran his winning presidential campaign on increasing taxes on the rich and on corporations. He plans to do just that, so…
Selling dirty
According to a survey performed by AlixPartners (AP), U.S. consumers are the “most anxious” about their health and finances. Chinese consumers rank the lowest in terms of anxiety pertaining to those issues. AP’s April 2021 survey concluded that “half of all global consumers say their spending habits have changed permanently due to the pandemic.” Whether you are a business owner or an investor, it is essential to understand where consumer spending will be directed. To figure out the “where,” we have to understand the “why.” According to the AP survey, nearly one out of every three U.S. consumers identified as being very…
Jobs and jabs
Bank of America (BoA) has been tracking the credit card use of clients who received the stimulus payments authorized by the American Rescue Plan (ARP). For the seven days ending March 27, 2021, aggregate credit card spending was up 82 percent from a year ago. Where is the money being spent? Everywhere. Furniture stands out, which reflects the heated home-building industry. And then electronics, clothing, airlines, home improvement, and restaurants (in that order of year-over-year growth). The two-year percentage change tells a better story because the world came to a halt the week of March 27, 2020. For the seven…
CAPITAL IDEAS: What a year
“It was the best of times, it was the worst of times … it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.” — Charles Dickens The year 2020 was dreadful. Our neighbors, friends, and family lost jobs as the economy struggled with COVID-19. Tragically, some of us lost loved ones to the virus. I keep those losses in mind as I review the year for the stock market. My intention isn’t to spike the ball in celebration of how well the stock market performed. Instead, it…
Cross currents confuse investors
You would think that with a $1.9 trillion spending package, an increasing rate of coronavirus vaccinations, and a potential $3 trillion infrastructure package waiting in the wings, the market would be at record highs. The fact it is not should tell you something about the indecision plaguing investors. When good news fails to impress, it usually means stocks (or at least some stocks) are headed lower. That should come as little surprise to readers. I advised investors to raise cash last month in preparation for what I see as a buying opportunity this month. The challenge: when do you put…
CAPITAL IDEAS: Stock market heat
“I gotta hold on to my angst. I preserve it because I need it. It keeps me sharp, on the edge, where I gotta be.”—Vincent Hanna Question: Hey, Allen, the stock market has been hot, and now it’s overvalued. Why do you remain invested? That’s a question I was asked recently. And by recently, I mean almost every week for the last few months. When asked that question, I actually want to answer a different question. I don’t want to answer “why,” I want to answer “how.” The answer is “apprehensively.” Today the stock market reminds me of the two…
SPAC Attack
One of the hottest trends on Wall Street today is special purpose acquisition companies or SPACS. There is hardly a day that goes by without an announcement of a new SPAC, or the acquisition and merger of a private company by one. It works like this. Although they are called “companies,” SPACs have no commercial operations, no sales, profits, or losses. All they have is a pile of cash. They received that money from investors in an initial public offering (IPO) with the promise that they would invest that money down the road into a private company with good prospects….
CAPITAL IDEAS: Passive investing
According to AAII’s calculations, the Russell 1000 Growth Index posted an average annual gain of 17 percent for the entire decade of the 2010s. That compares to a 10 percent return for the Russell 1000 Value Index. Holding a balanced portfolio throughout that decade would have been prudent. A balanced portfolio would have been more diversified and, theoretically, safer. However, that prudent, safer portfolio would have underperformed its more reckless counterpart. It is a worthwhile exploration to elucidate why this occurred. At least two of the reasons that drove the outperformance of growth relative to value are still applicable today. Those…
Financial froth infects markets
One sure sign that stocks are getting overdone, is the actions of overconfident investors that bid up stocks in a euphoric frenzy, only to dump them at the first sign of trouble. These behavior patterns normally usher in a corrective stage in the stock market, but exactly when that will occur is anyone’s guess. Investopia’s definition of froth “refers to a market condition where an asset’s price begins to increase beyond its intrinsic value.” Wall Street’s “Reefer Madness” event this week is just such an example. Certain stocks in the Cannabis sector saw their share prices double and then triple…
Capital Ideas: Politics unusual
COVID-19 Vaccination Update As of February 2, 2021, 32.8 million Americans have now received at least one dose of a COVID-19 vaccine. That was more than those who tested positive for the virus. The average daily rate of vaccinations has reached 1.34 million doses per day. The average daily rate may be affected by the snowstorms of last week, but it seems to be trending upward. Trading a Pullback Valuations are staggeringly high. Nonetheless, I remain invested in equity for the portion of my portfolios intended for that. Despite sky-high valuations, I am hesitant to take bold defensive moves. I…
Stocks regain momentum
What a difference one week makes! Stocks recouped all their losses this week, and then went on to make new highs. The outcome of President Biden’s proposed stimulus bill will determine the market’s next move. Let me set the record straight. Last week, I wrote that I expected stocks to stumble, hopefully preparing readers for a possible decline of 10-15%. That was a mistake. Instead, traders bought last week’s 3% dip, and, at this point, we are now back to square one. Well, not quite. The U.S. dollar, the Ten-Year U.S. Treasury Bond, and the price of gold have all…
4 Smart Money Moves for 2021
With the new year in full swing, it’s a great time to take stock of your personal finances. From building a budget and saving for retirement to getting a jump on this year’s taxes, here are some of the smart money moves to consider to help brighten your financial life in the new year. 1. Build a budget Creating a monthly budget can help you better understand your spending and identify how much money you can put toward your financial goals. First, take your monthly salary or wages after taxes are taken out. Next, tally your necessary expenses for each…