The stock and bond markets knew inflation was coming. This week’s 6.2% jump in the Consumer Price Index drove home the fact that inflation has become a fact of economic life, at least for the near future. The jury is still out on whether inflation will prove to be “transitory” as the Federal Reserve Bank argues and as some economists believe. Others fear that we could be on the verge of something a little more serious. The fear is that the Fed might be forced to raise interest rates if that were the case. The Producer Price Index (PPI) and…
Insights & Advice
Tag: tech stocks
Stocks make new highs
It has been the best quarterly earnings season in a long time. More than 87% of companies that have reported thus far have beat earnings estimates. That is a record, and investors celebrated. Last week, I mentioned that this earnings season has been a classic example of a sell-on-the-news. It has been especially so for companies in the technology sector, but not so much for investments in other areas. What, you might ask, does this say about the overall markets? The most bullish interpretation is that we will continue to move higher, making new highs after new highs. The Dow…
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…
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…
The Ghost of Christmas Past
Tis the season to be overly optimistic about the year ahead of us. We reflect upon 2020 and commit (for about a month?) to New Year’s resolutions that will help us participate in what will undoubtedly be a better year than almost any prior. I’m not talking about you and me. I am talking about the U.S. equity market. The MSCI U.S. Index is comprised of 618 companies that represent large and mid-cap companies. It covers approximately 85 percent of U.S. market capitalization. The consensus expectation for aggregate earnings per share of this index is 20 percent for 2021….
Market’s correct imbalances
It always happens. Sometimes it takes longer than one would like, but sanity returns to the stock market when you least expect it. The only word that accurately described the stock market at the beginning of this week was “parabolic.” On Tuesday, believe or not, the total worth of just one stock, Apple, was larger than the entire value of the Russell 2000 small cap index. It was also much greater than the entire value of the U.K. stock exchange. Story stocks like Tesla were rising along with the technology-heavy NASDAQ index. Stay-at-home stocks were logging daily gains that in…