Updated: Apr 6, 2021
When you look out the window flying on a plane you are on top of the world looking down. It feels pretty good, relaxing (for some people), and sometimes we have to take that view with the markets and extrapolate what we see, break it down, and analyze it. What do I see right now? A simple pullback in some high growth names while we head towards the end of February. This is OK. The only people I see panicking are those with short-term options who are getting burned (let them burn honestly), while Fiducia is down on our current swing trades this is why we buy them out to two, three, four months at a time for the swing trades. We want to give ourselves time and have patience with the trades (not advice, just trade ideas and what I enter). I usually spend my days like today reading and getting more information overload. Taking in data from WSJ, Barrons, CNBC, Yardeni.com, Factset in order to keep a level head, because that is what people will pay me for at the end of the day. Let me dissect a few articles for you, and my thoughts on them.
You can click on the headline and it will bring you the the link. The Federal Reserve at the most recent meeting said they would hold interest rates low and continue central bank bond buying. This is all good and dandy, but the economy is far from coming back and there are still risks to the economic recovery. Businesses are still not fully open, some small businesses have shut down completely, jobs are still getting lost, vaccine distribution is a little whack, and honestly everyone who got a "stimulus" check just spent it per WSJ. Lower income aid recipients boosted their spending. Spending by households making above $100k was broadly flat (saving money in this environment makes sense, right?), while consumers who make less than $60k per year spending jumped 20% in the week ended January 10th, 2021. Back to the Fed, there are positive signs with retail sales, but at the same time these numbers are not the best they can be given the capacity at places.
Ah yes, the policies bringing us into an asset bubble. I have read articles on this since 2014, and have spoke with many investors who have been hearing it forever. The stimulus is just replacing cash flow that should have been in the economy in the first pace, as Howard Marks mentioned in one of his very thought-provoking memos. If you do not read Howard Marks memos, I suggest you do as an investor. Not only will Fiducia provide you with research, but I will provide you with sources to read as well that we can discuss as a community. I feel terrible for small businesses, so my Fiance and myself are going to 1 new local restaurant each week to support them in the Pittsburgh area.
Earnings came in much better than expected, which I believe will fuel the bull for higher moves. 74% of the companies in the S&P 500 have reported as of 6 days ago, with 80% reporting above estimates (above 5-year average of 74%). The market has not been very rewarding of positive beats though. Apple and Microsoft are the largest contributors to Info Tech YoY growth, JP Morgan is the largest financial contributor of YoY growth and Metals & Mining for Materials is the largest contributor to YoY growth, Boeing and Airliners are largest contributors to Industrials YoY growth (we have a long call position on Boeing, down on it, but stick with the process and risk mgmt).
Below is the chart of Growth vs Value since 1997, I linked the PDF in the heading so my members can access it.
I am a firm believe "growth" will continue to outperform "value", but I do think there are some very solid value-like plays out there, Lockheed Martin, possibly Boeing. I am liking defense here, another way to get exposure there is through ITA. Look, our businesses are doing well! Take a step back and look at BlackLine, Cloudflare, and Zebra. They have had tremendous returns over the last year and hardly pulled back after this recent Q (Zebra did not even pullback!), I continue to remain bullish on BUSINESS.
So jobless claims data came in worse than expected, right? Do we know for a fact this is why the market is down today? Probably not, we can hypothesize, but no one really knows. Are you going to sell your high quality business? Nah. Should you buy more? Possibly, if it looks attractive enough.
Whenever you are stressed your account is down, just step back and look down. Things are getting better, the economy will open back up eventually, businesses are doing well (the ones we own at least), and you have to block out the noise. Focus on your core holdings and find new opportunities. I have swung $35k in 3-4 days, most of the volatility is due to my options trade exposure which is not too hot right now, but this is why I have the strategy I have. I buy time, sleep at night, and be able to read and give my analysis to people. I think I may create a Power Point on my investment process and an overview of what I look for and may put it up on the website. I am still a net BUYER of this market.