The continuing volatility in the stock market is troubling. It is likely signaling difficult times ahead as early as January or February 2022. As such, it is time to consider risk management. After more than a decade of steadily rising equity prices with few interruptions, investors have been lulled into believing that investing in stocks is a riskless game of never-ending profitability. Newcomers to the stock market arena, like your typical Robinhood investor, have been using stocks to supplement, or even replace earned income. Unfortunately, I believe we are entering an environment where the investment themes are changing to our…
Insights & Advice
Stock Market
A two-thirds chance the stock market will go up in 2022
Are you familiar with the hot hand fallacy? Gamblers fall victim to it when they convince themselves that wins or losses come in streaks, and those streaks stay that way because, well, just because they believe past performance is indicative of future results. In most cases, it isn’t. Admittedly, sometimes past performance is indicative of future results. I’ve hired people who have shown a track record of progressive responsibilities — and with the proper support, they continue to do so. A good boxer often beats her next opponent because she has developed skills and knows how to put together a fight…
Markets keep churning
As most investors expected, the Federal Open Market Committee (FOMC) announced the start of their tapering effort but doubled the pace of the monthly taper to $30 billion/month until March 2022, when the effort will conclude. In addition, FOMC members see three, 25-basis-point increases in the Fed Funds interest rate next year, and more in 2023. Faced with the end of a decades-long era of loose monetary policy, historical behavior would indicate interest rates up, equities down. That still seems a good bet despite the market’s immediate reaction to the Fed announcement. Some participants may still be scratching their heads…
Is the bounce legit?
Anything can happen between when I write this column and when it gets published. As of the moment my fingertips are tapping the keyboard (December 7, 2021), the major U.S. averages are roaring up. But is the bounce legit? The good news about the timeliness of this column is that this is a question that can apply to today, the 7th, and any bounce that may occur throughout the next month. But before we attempt to answer that question, today’s column was brought to you by the Federal Reserve’s semi-annual Financial Stability Report. According to the report, U.S. households have a…
All eyes on the Fed
The stock market snapped back from the brink this week and recouped the losses suffered since Thanksgiving. In the coming week, investors will switch their focus on just how much and how soon they can expect monetary policy to tighten. In the meantime, we have had some good news. The Omicron variant of the coronavirus seems to be less serious than first feared. Existing vaccines, according to some drug companies, should be able to handle this mutation with an added booster shot. In the U.S., those booster jabs are already working through the population. That should shore up any worries…
Is the stock market too high?
At the end of the first trading week for November 2021, four stock market indices closed higher than two standard deviations above their 50-Day Moving Average (DMA; a moving average is a technical analysis indicator that smooths out daily price fluctuations). The S&P 500, the NASDAQ, the Dow Jones Industrial Average (the Dow), and the Russell 2000 simultaneously closed above those extreme overbought levels for the first time in 455 trading days (since January 16, 2020). This is where I tell you to batten down the hatches and get ready for a pullback, right? Not necessarily. Historically, when this has…
Markets snap out of their downtrend
It appears that we have established a range in the stock market over the last few weeks. The bears have not seen their worst predictions come true. My hope is that we leave this month where we entered it. September 2021 was treacherous. Bears were calling for a 10% correction at a minimum. Bulls, already on the back foot after witnessing a 5% pullback in the indexes, insisted we had seen the lows. Since then, we had been bouncing back and forth in a range. This week, however, appears to be a game changer. We have not re-tested the lows…
Flashing lights for the stock market
I made some trades last week. I did different things in different portfolios. I believe that readers will be best served with a summation rather than a specific list of what I did in each. The result is that I got more conservative. I shifted about 4-8 percentage points from position to position. I did not raise cash. I reduced (but didn’t eliminate) my small-cap and homebuilder stock positions and shifted back toward large-cap stocks and high-yield corporate bonds. In last week’s column, I teased out this consideration in the “You’re Too Happy” sub-heading. I cited there, “I have some holdings…
High risk, high reward?
Inflation has been high, based on the Consumer Price Index, or CPI. The Bureau of Labor Statistics reported that the CPI was up 0.6 percent in May 2021 and rose 5 percent over the previous 12 months. Both are big numbers and well above historical trends. The Federal Reserve has repeatedly said that the high inflation is “transitory.” Others expect high inflation to continue unabated. I don’t understand why people argue either/or. I suspect some forces will push inflation consistently higher but not to a ruinous level. (I do believe that continuing at a 5 percent rate would be ruinous.) Let’s…
Race to the bottom
Before the weekend of June 5–6, 2021, I enjoyed a fully vaccinated (literal) water cooler chat with Nate and Scott, two of the advisors at Berkshire Money Management. The shop-talk topics were various: the economy, investment selection, politics. Our conversation veered to the recent chatter about global tax reform. Specifically, the Friday, June 4 meeting in London where U.S. Treasury Secretary Janet Yellen planned to propose a minimum corporate tax on multinational companies to the Group of Seven nations, or G-7, (Canada, France, Germany, Italy, Japan, the U.K., and the U.S.) I scoffed at it, noting that there’s no way…
More people expecting a correction
“Oh, there’s my phone … What’s that? Then SELL, SELL SELL. They’re all selling? Then BUY, BUY, BUY!”—Al Czervik I fancy myself a contrarian investor. Famed investor Warren Buffett would advise a contrarian investor to “be fearful when others are greedy. Be greedy when others are fearful.” Today, I am a conflicted contrarian. There is a lot of optimism around the stock market. Per the contrarian textbook (if there were such a thing), I should be reducing a lot of my equity allocation. But I’m not doing so in a significant way. Yet. It’s always hard to pull the proverbial…
The movies return
The Memorial Day weekend launched the unofficial beginning of the summer season. Movie owners are holding their breath in hopes that consumers, once vaccinated, may start to return to the cinema. Is it a false hope? Much has been written about the demise of the movie theater, even before the world was ravaged by the Coronavirus Pandemic. Sky high prices for tickets and the exorbitant costs of concessionary items like $8 bottles of water and $15 baskets of popcorn had made the movie-going experience almost as costly as a rock concert. At the same time, consumers were being offered the…
Pay up
Weekly pay is up 3.9 percent from March 2020 to March 2021, according to the Bureau of Labor Statistics. That may not sound like much. However, before the pandemic, growth rates had ranged from -0.8 percent to 2.9 percent, dating back to January 2011. From January 2011 to March 2020, there were 20 occurrences of zero or negative weekly earnings growth. In contrast, there were only seven occurrences that exceeded 2 percent. Year-over-year growth of weekly earnings since April 2020 has been stellar, averaging 5.1 percent. It’s not uncommon for average wages to grow higher during recessions. Sounds crazy, right? When…
Market rotation continues
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…
The carbon market comes of age
At the beginning of this year, the global price of carbon was $24.05 per ton of CO2. In order to achieve the emissions reduction goals of members of the Paris Agreement, prices need to reach a range of $50-$100 per ton of CO2. That makes buying carbon an attractive investment.The ongoing concerns about climate change have spawned several emission trading schemes over the last decade. The reasoning is simple: if left unchecked, carbon emissions (among other factors) will have a material impact on our environment and will do severe damage to the global economy.The ratification of the Kyoto Protocol of…
Sit here in your Bitcoin chair
Bitcoin crashed. Again. It got cut down by more than half the high it made on April 13, 2021. Though, let’s be honest about it. By the time this column goes to print, it could have restored its losses. I don’t own Bitcoin. Or any cryptocurrencies, for that matter. I know lots of people who do, including at my workplace. I’m not against it. I tell everyone who has the aptitude to do so, “Go ahead and trade it. So long as you know the risks and have an exit plan, trade it.” I know — I’m an old man…