In his Daily Market Notes report to investors, while commenting on the struggling tech companies, Louis Navellier wrote:
Gates Capital Management's Excess Cash Flow (ECF) Value Funds have returned 14.5% net over the past 25 years, and in 2021, the fund manager continued to outperform. Due to an "absence of large mistakes" during the year, coupled with an "attractive environment for corporate events," the group's flagship ECF Value Fund, L.P returned 32.7% last Read More
The Wall of Worry added a few bricks last week. Covid uncertainties that won’t be made any clearer by science this week or next, and the uncertainty created by the rapidly falling US interest rates after the surprisingly hawkish J Powell comments is interfering with prior expectations of a seasonal year-end rally and expectations for a march to a full post-pandemic reopening of the economy in 2022. And there was a newer proxy of risk-off in the 24/7 trading of BitCoin which tanked 20% over the weekend.
The most confusing move is the longer maturity Treasury yields falling on the heels of the new expectations of an accelerated tapering by the Fed, the biggest US Treasury bond buyer in the market by far. This is on top of a consensus that inflation is not “transitory” and that bonds are already offering negative real yields (stated yield minus inflation) before yields started falling. This is far too big a market to brush aside as inconsequential, especially since all year long lower rates resulted in stronger high valuation tech names moving higher and now tech is falling with interest rates. It feels like a risk-off flight to quality but with the rest of the stock market acting well and earnings and GDP forecasts still strong we are certainly being presented with mixed signals.
Longer-term, earnings are what matter, which are driven primarily by the consumer in the US and both remain in very good shape. The Fed repositioning is a good thing by giving them optionality they need to have a more credible “put” if needed, and as the Fed takes away the punch bowl Congress should be stepping up with additional liquidity in the Build Back Better legislation. The year-end isn’t as hot as hoped but should still end on a high. Temper expectations but stay long.
As always, Wall Street loves to climb a wall of worry. I expect that since the 10-year Treasury bond remains an oasis and the fourth quarter GDP growth is expected to be stunning, a strong U.S. dollar will continue to attract foreign capital and keep interest rates artificially low relative to inflation. This essentially means that growth stocks, as well as dividend growth stocks, will remain an oasis for investors. As the stock market retests its recent lows this week, next week’s FOMC statement as well as the November retail sales report are shaping up to be the catalysts that propels the stock market higher in the second half of December.
Struggling Tech Companies
There have been some liquidity meltdowns this month. Many Chinese stocks are going to increasingly list in Hong Kong due to the unfortunate perception that Chinese companies do not fully comply with U.S. accounting standards. Cryptocurrencies have had a horrible December after effectively making a “double top” in November. NASDAQ has not been an oasis this month and many technology companies have struggled. The fact that the Federal Trade Commission (FTC) is trying to block NVIDIA Corporation (NASDAQ:NVDA)’s proposed $40 billion acquisition of Britain’s ARM Holdings has rattled the technology landscape since it undermines the U.S. attempt to become more dominant in the semiconductor business. If China attempts to take over ARM Holdings, they can thank the FTC for interfering with U.S. commerce and systematically destroying the most dominant industry in the U.S. I find it ironic that an industry that helped Joe Biden become elected is now being punished by the Biden Administration. This may help to explain why despite robust economic growth, the approval rating for the Biden Administration has plummeted. The fact that the Biden Administration is only promoting less efficient EVs made by union-made EVs is raising questions about whether or not the U.S. is truly serious about making a successful transition to EVs since Lucid, Rivian and Tesla have not been included in any of the Biden Administration’s attempt to boost EVs. Naturally, the other reason why the Biden Administration and the Fed are under fire is that it is perceived that inflation has spun out of control. Friday’s Consumer Price Index (CPI) report will be closely scrutinized and possibly influence the December Federal Open Market Committee (FOMC) meeting in the following week. Fed watchers are expecting the Fed to further reduce its tapering as international buying pressure has pushed long-term Treasury bond yields lower.
Heard & Notable
A plumber working at Joel Osteen's mega-church in Houston found a large amount of money hidden inside a wall seven years after $600,000 was reported stolen during a break-in at the church in March 2014. The envelopes full of cash and checks were found inside a wall behind a loose toilet. Source: UPI